Geopolitics is starting to impact the crude markets, once again. When King Abdullah made it a point to highlight before the Shoura Council in his important inaugural address that Saudi Arabia would continue to play its moderate policy on oil issues, indeed he had reasons for doing so.
A host of factors, from Iran to Venezuela and Nigeria to Iraq are enough to make the markets nervous. And to add to all this, is the sharp 5.4 million-barrel drop in US gasoline stocks amid slow refinery production. This came at a point when the summer driving season in the US is just around the corner.
Crude markets have thus firmed up. Speculation is rife that the prices may soon be approaching the $70-a-barrel mark that it touched last August. From comparatively modest prices of around $60 a barrel, the markets are once again hovering around $65 -a-barrel mark. The fluctuation continues.
Given the current volatile conditions, the markets could not have missed out on each of the above factors. For they carry immense influence in the already stretched demand-supply balance. Tight market conditions are such that the US Energy Information Administration (EIA) now strongly feels that the crude markets would continue to stay in the same boat for at least a few more years. Michael Cohen, an EIA economist, last week said the crude production in stable production areas such as Mexico, the North Sea and the Middle East was expected to drop over the next two years.
Meanwhile, the demand for oil, particularly in rapidly developing nations such as China, India and Brazil, is expected to grow. That means more oil must be discovered and produced, not only to keep pace with surging demand, but also to replenish the declining output, he emphasized.
Over the next two years, non-OPEC oil producers are expected to step up production by 2.5 million to 3 million barrels per day, while global demand for oil will grow by 3.5 million barrels a day, Cohen and private analysts said. The world will thus have to look to OPEC to make up for the shortfall.
Irrespective of the wish list of President George Bush and his team, the US dependence on the oil producing OPEC states is increasing — and not decreasing.
At a time when the US has, perhaps unnecessarily, made two of the OPEC major players, Iran and Venezuela, its antagonists, the market is starting to feel the pinch. This is despite the fact that Iran, the world’s fourth largest exporter has openly vowed not to use its oil as a weapon in its ongoing tussle against the West. However, market’s erratic behavior in recent weeks has been on this account too. In case the war of words heats up, it would be difficult to predict the next moves on the crude chessboard, many in Dhahran, the virtual global energy capital feel.
Venezuela is also starting to be more vocal against the US. The recent Venezuelan tirade against the US giant ExxonMobil has made the markets still more nervous. This, when combined with the situation in Iraq and the law and order situation in Niger Delta, presents an ominous situation — to say the least.
However, the situation is not only a cause of panic to the global crude markets; it is also making many in the US, the largest consuming nation in the world, uneasy. Americans today are nearly as worried about their country’s dependence on foreign energy sources as they are about the war in Iraq, a poll released by the magazine Foreign Affairs showed last week.
Almost half of the 1,000 Americans surveyed for the Public Agenda Confidence in the US Foreign Policy Index gave US policy-makers a failing grade in weaning the country from foreign oil. Another question that arises and is open to debate is if the professed objective of weaning away from the Middle Eastern crude is possible in the current circumstances? Nearly 90 percent of the respondents of the above said that the lack of energy independence jeopardizes national security.
Public Agenda, a non-partisan group, conducted the poll in early January with funding from the Ford Foundation. It said that Americans are at a “tipping point” on energy, akin to their state of mind about the war.
Daniel Yankelovich, chairman of Public Agenda, said the public reaches a “tipping point” when it is gravely worried about an issue and believes the government has the ability to change matters.
“Now with this issue having reached the tipping point in the public I think that means the political complexion of that issue is about to change considerably,” he added.
In the latest survey, 85 percent of respondents said the US government could do something about energy dependence if it tried.
The share of those who worried foreign conflicts will drive up oil prices or cut off supplies rose to 55 percent from 42 percent in the poll conducted last August.
The unleashing of war against Baghdad has apparently not eased up the concerns of the US planners. In fact it has increased it considerably.
Aggressive US foreign policy, apparently to take care of its energy concerns, have failed to pay off. People in Washington need to take that into account. Washington somehow needs to learn to live and let others live. Therein lies the salvation of this ‘crude’ driven civilization of ours.
