We Are The OPEC And We Want The Triple-Digit Oil Prices Back

We Are The OPEC And We Want The Triple-Digit Oil Prices Back

The probabilities of the oil price to reach again the triple-digit, were very close to zero, according to the scenario that the Cartel (OPEC) was facing. In the same order of the article that I´ve published last year, 5th December 2016, O DESAFIO DA OPEP (The OPEC Challenge), where I´ve clearly shown my position concerning the Oil Price issue, I´ll try to make an analysis of the actual situation. One, firstly, concluded that the decision of reducing the oil production would lead to an increase in the oil price in the short run. But, not in the long run.  

After the OPEC decision of reducing the oil production, we saw the oil market reacting by the pushing up of the  oil price. “Today, 09/01/2017, the oil price jumped to 52.62 usd per barrel, from 49.18 usd per barrel at 09/10/2016” (Note that the higher oil price today was 53,74 usd. source: www.plus500.pt). It looks like the objective was attained. For sure, if it was just to push up the price, they got it. But, lets keep in mind that we are still in the shot run, considering the fact that the decision was made on the last 30th November 2016 and recognized by the Non-OPEC countries on 10th December 2016.

The decision to implement the production adjustment of 1.2 million barrels a day (mb/d) was made on 30th November 2016, but effective from 1st January 2017.

From the day the announcement was given till the day the decision was taken, the oil price really went up. Can we classify it as a big or small increase? This is an analysis that I let one to do. This increasing, along this lillte period of time, shows up the power of speculation.

May the consumers of oil wait for continuous increasing in the oil price?

Based on the Adaptative Expectation Theory, the answer is Yes. This is, if the consumers of oil (countries), make their consumption decision based on the daily prices, then the pression in the oil price will be upward. Based on the information observed on the oil price since the announcement, the oil consumers can wait for continuous increasing.

   

In the other hand, if the oil consumers are racional, according to the Racional Expectation Theory, the answer is No. If they are racional in their consumption behaviors, they will consider the historical information of the Organization of the Petroleum Exporting Countries. Just to remember, this is not the first time that OPEC decides to cut the oil production to a lower level, for all its the countries. The fact is that they do not respect the pact. So, the consumers should wait for a non accomplishment of the accords. By this way, it is hard to believe that the oil price will have a continuous increasing.

In fact, a continuous increasing in the oil price is an ambiguous issue. Because, more than economics, we have here political issues.

Will the oil price hit again the triple-digit?

In a conversation last year, with my  Monetary and International Economics Professor, at Minho University, one asked him: Professor, how do you see the current situation of the Economy of Angola (Angola is a poor oil producer country and an OPEC member, Angola is my country in a pessimistics point of view)? Of course he said many things around the question.

Along his explanation he said something very curious. “He told me that the Oil price would not increase, hitting again the triple-digit, unless the US remember to bomb the Saudi Arabia”.

Today, with the Foreign policies expected to be adopted by the elect president of the US, Donnald Trump, accordding to what he is promising, I can say that we don´t even need to wait for a US bomb attack to Saudi Arabia. One expects a No Lunch For Free policy coming from the Trump administration. So, if the US decides to put an end in the support given to solve the problems of the Middle East, one can expect a direct armed confrontation between Saudi Arabia and Iran, led by the tensions between the two countries.

And according to The Pessimist´s Guide to 2017 of Bloomberg, this is what we can expect as a new for 2017:

“One scenario that really concerns us greatly is the destabilization of Saudi Arabia and there are various factors at play (Yemen, Iran financing terrorist attacks on Saudi oil fields, Al Qaeda inciting protests). These could mark a turning point for the House of Saud and create the circumstances that lead to triple-digit oil prices”.

So, The triple-digit oil prices will be expensive for some OPEC members (Saudi Arabia and Iran). How will this two countries react to the increase in the price, assuming that it happens? How will the other OPEC members react to the increase in the price, especially those that depend strongly on oil (on the oil price)?

Again, OPEC will be facing its sweet dilemma.

The triple-digit oil prices is a dream realized with a nightmare

“Please note that, this is a pessimistic point of view, that I´ve dicide to draw here”

Resumo (Somos a OPEP e Queremos o preço do petróleo de volta aos três dígitos)

A decisão de redução na produção do petróleo, por parte da OPEP, levou a um aumento ligeiro no preço do petróleo. É de esperar que o preço tenha um crescimento contínuo? A teoria económica fornece a resposta a esta questão, sugerindo uma análise condicionada ao comportamento dos consumidores de Petróleo. Isto é, se os consumidores basearem as suas decisões de consumo nas expectativas adaptativas a resposta é Sim. Por outra, se basearem as suas decisões na expectativa racional, a resposta é Não.

Podemos esperar que o preço do petróleo atinja outra vez os três dígitos? Ou melhor, Podemos esperar que o preço do petróleo atinja outra vez valores, igual ou acima dos 100 usd?

Esta é uma questão ambígua porque existem também factores políticos, a considerar.

Num olhar pessimista, ao meu gosto, o alcance dos três dígitos do preço do petróleo, é um sonho realizado com um pesadelo.  

Príncipe Zanguilo