The resilient oil market
EARLIER this week, oil analysts were up in arms following a weekend drone attack on one of Saudi Arabia’s most important oil facilities that many assumed would cripple petroleum exports for days or weeks.
A deluge of reports were released, with many analysts estimating oil prices inching closer to US$80.
Some analysts even said that this incident far outweighs the previous oil embargo in the seventies and could escalate tensions in the already fragile Middle East.
This would be good news for Petroliam Nasional Bhd or Petronas, as it would see a temporary spike in its revenues. Malaysian oil service support companies would also benefit.
As at press time on Friday, Brent crude oil was hovering at the US$63.71 level, meaning that Brent oil prices are only 5.8% higher compared with before the weekend attacks.
While Brent futures briefly spiked about 20% or more than US$11 a barrel when trading started on Monday, it then eased to an increase of about 10%, or just over US$6 a barrel. By Tuesday, the uptrend was halted on news that production would be restored soon.
At Brent’s current level, it has risen from its seven-month low in early August. However, it is still about 20% below yearago levels.
On Bursa Malaysia, oil stocks rallied just for a day. By Wednesday, all the gains were returned. The reality is this – one cannot fight the structural long-term trend of oil.
There are a tonne of oil inventories across the globe and oil disruptions are increasingly having smaller effects on oil prices.
This isn’t a 1973 oil embargo scenario where oil prices shot up 231.6% over four weeks.
The elephant in the room, though, is the emergence of shale oil led by the United States about a decade ago. This has completely changed the dynamics and political play of the oil industry.
US oil production has doubled in the past nine years due to oil produced by hydraulic fracturing and horizontal drilling in shale basins.
Furthermore, the stockpiles of the industrialised countries are at their highest level since September 2017, and are nearly 20 million barrels above the average of the last five years, according to the energy agency.
So, don’t be surprised when the next time another oil disruption takes place, prices remain indifferent.