Friday, August 7, 2020
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Oil market adjusting to troubles

Despite the worldwide political tension, the international oil market seems to be at ease thanks to increasing supplies from inside and outside OPEC. For quite a long time, political troubles used to translate into tight supplies and increased prices.
The three bodies — OPEC, the International Energy Agency and the US Energy Information Administration — all agreed in their recent monthly reports that expected increased supplies will be met with enough supplies ranging from 1.4 million barrels per day (bpd) to 1.7 million bpd to 92.7 million bpd.
Part of the surge in supplies is attributed to the new addition made to compensate for drop in production from Libya and other producers.
The Kingdom, which led the way for exporters with secondary sources, estimated that its production rose by 90,000 bpd to 9.85 million bpd last month.
But more significant was Iraqi output, which surged by some 530,000 bpd last month to 3.62 million bpd — the highest since 1979 after it managed to complete infrastructure facilities in the southern part of the country.
This as well as other additions led OPEC in its monthly market report to predict an increase in demand as well as supplies from the organization for the second straight month, where it added an additional 50,000 bpd to its previous monthly report.
All in all, OPEC is expected to provide more than 30 million bpd. And that is despite the troubles in Libya that led to drop in its production and the political and military standoff between Tripoli and its opponents. Even Baghdad has its troubles with Erbil, the seat of power for the Kurdistan Regional Administration.
In fact, the regional administration of the Kurds had opted for a unilateral development of its oil resources, a move that led to an open political confrontation between the two capitals.
So, at the time, political fragmentation was building up leading to the other fragmentation of the country’s oil industry; that development helped in a way in providing more supplies though it is yet to be felt by the market.
Equally, the opening up of the national oil companies to new forms of service and other contracts that allowed for foreign expertise, technology and investment to get in, has contributed to improvement of supplies as well.
With the rising political awareness, producing countries thought the best way to control their oil industry would be through their own national oil companies, who can exercise sovereignty on behalf of the state. That was the background for the tide in the 1960s and 1970s to control the industry in the form of outright nationalization to gradual participation that over time achieved complete control without having to rock the administrative and technical setup of the industry.
However, over time the downside of the government control started to show up in the form of rigid bureaucracy — inability to carry out necessary programs with good planning, adequate funding.
The net result was that national oil companies, with the exception of a few led by Saudi Aramco, failed mostly in carrying out their duties and do what they are supposed to do. That is why they, again with the exception of Saudi Aramco, opened up for foreign partners in the area of crude upstream and help increase output.
The other point to add is that the industry has improved its ability to live up with danger and continued to develop and expand. Whether it’s the oil curse as some academicians like to call it or mere coincidence, violence seems to be an integral part of the industry’s performance.
The deterioration in this respect is unmistakable. Algeria, which has survived a decade long with no serious threat to its oil and gas facilities, saw last year the worst event that led to a lot of questioning about the future safety of the industry and whether it will be able to meet growing demand.
After all, increased supplies need investments, and for such investments to pour they need safety and security. Income and profit have proved throughout history as the most credible mover of events and oil industry will not be an exception even at the time the state seems to be disintegrating as signals in Iraq and Libya indicate.

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