The month of September was marked by a decline in the price of oil which left the zone of 75 dollars per barrel to fall below 70 dollars per barrel. This drop was due to the conjunction of two elements: the first was linked to doubts about demand and in particular about Chinese appetite. Indeed, the news from Beijing suggested that activity was slowing down and that the leading importer of crude oil with a consumption of around 13 million barrels per day would not be there to support oil prices. . Added to these doubts about China were those about the American economy and the disappointing labor market figures during the summer which raised fears of a sharp slowdown. In addition to these gloomy prospects on the demand side, the OPEC+ countries, led by Saudi Arabia, suggested that they were going to increase their production. The combination of less dynamic demand and more abundant supply whetted the appetite of many speculators who sold short and pushed the price even further downward. Oil thus reached record levels in terms of short contracts.
This picture which suggested that the price of oil was heading towards a downward spiral was completely invalidated by two elements. The first is the announcement of the Chinese recovery plan which has revitalized demand. On the supply side, Iran’s attack on Israel on the night of September 30 to October 1 brought the geopolitical question back to the heart of the oil market. Indeed, in three days, the price of crude oil has gained more than 7% with a barrel of Brent reaching $78.
The importance of the Middle East
The reaction of investors to these geopolitical tensions can be explained by the importance of the Middle East on the global oil scene. In fact, more than 30 million barrels per day (or more than 30% of global production) come from this region of the world. Beyond the quantity of oil produced, another specificity of Middle Eastern production is the very low cost of production, a barrel of crude costs around five dollars to extract compared to twenty dollars in Russia and thirty dollars for the best wells. in the United States. Finally, another particularity is that it is very easy for producers in the region to vary their production. However, this is a rare thing on the oil market. In general, varying the production level of a well “damages” it and reduces the volume that can be extracted. From then on, it becomes clear that the oil of this region is vital to economies around the world and that without it the specters of economic crisis and instability are not far away.
Iran’s destabilizing potential
Thus, even though Iran exports only 1.5 million barrels per day out of a production of more than three million barrels per day, its ability to limit the region’s production makes it a vital player in the region. Indeed, many Iranian officials have suggested that in the event of an attack on their production capacities they will destroy those of Saudi Arabia, Kuwait, Qatar, Azerbaijan and the United Arab Emirates (i.e. production of approximately 25 million barrels per day). This type of attack would not be unprecedented, since on Saturday September 14, 2019, the Houthis of Yemen launched a drone attack on the Saudi oil installations of Abqaiq causing a reduction in production of around five million barrels per day or 50% of world production. This caused a rise in the price of a barrel with a peak of 20% increase during the Monday following the attack. Even if this episode of increase did not last, it clearly illustrates the fragile balances that govern the oil market. Therefore, a much more significant reduction in supply would have a significantly greater impact on the supply of crude oil throughout the world and ultimately on the global economy.
In conclusion, the black gold market still displays all its complexity through the combination of fundamental elements such as the economic trajectory of countries and their thirst for oil, but also through the influence of geopolitics and tensions in the Middle East. -East. Faced with all of these elements and the uncertainties of future developments, the price of a barrel shows moments of fever and moments of calm depending on the incessant flow of information which is sometimes difficult to interpret. What is certain is that black gold is indelibly linked to geopolitics and the fogs that surround it.
