Is the world oil market close to a disciplinary breakdown?

By: Ariana Méndez Lugo. Insight TV. November 4, 2021.

Analysts of the world oil market doubt that allied countries will respect the agreements to cut production in the face of the historic demand for fuel and project the collapse of the fundamentals that govern the sector.

Today, the world is going through an atypical path that contracts the stability of the market, a reality from which the oil field does not escape and many wonder if the actions carried out to surf in a sea of contradictions are violating the fundamentals that, for decades , have marked the course of this sector. In theory, the economy always works, the increase in demand and prices triggers supply, but in a pandemic, practice behaves differently.

In recent days, the United States government urged the market to take expeditious measures to move towards a low-carbon economy; but the national security adviser of that nation, indicated to OPEC + the increase in oil production with the intention of containing the increase in gasoline prices.

The foregoing highlights the disparity of criteria in the face of a somewhat disturbing fact and a more than tacit reality: oil is vital, the market is forcing companies to abandon fossil fuels and producers in the US are accumulating liabilities. Therefore, Saudi Arabia, Russia and OPEC + assume a more prudent strategy; they omit production cuts despite the rise in benchmark crude oil in the European market; indicative that the offer will maintain a tendency to scarcity.

Analysts from the financial multinational Morgan Stanley project an unfavorable environment for 2024 with a downward trend in production and to understand such a statement; suffice it to see that, with increasing demand, global investment in oil and gas fields in 2020 was US$348 billion, up from a peak of US$740 billion in 2014.

It is not surprising that over time, the rise in the price of crude oil fades amid the rapid spread of the delta variant of Covid-19, which puts oil demand at risk in the face of the imminent 6% increase in prices. the world economy in 2021 and 4.9% in 2022 according to the most recent projection of the International Monetary Fund.

For the British analysts of the Petroleum Price Information Service, not everything has been clear after the recent negotiations for OPEC + to agree on production increases and they wonder if the members of the alliance will respect the production restrictions or the oil market is close to a disciplinary break.