Why isn’t the oil market recovering faster?

English

By Suha A. Obaid

Folk Shipping

As one of the most sensitive commodities to global change, the current state of black gold remains a mystery to scholars. A gradual build-up of factors including monopolies, natural disasters, supply and demand, credit bubbles, market cycles, global warming and last but not least geopolitics have all come to bear on oil prices. These combined dynamics are far more complex than they in previous recessions.

The 1973 recession for example was caused by the by the OPEC members embargo on the United States, 1979 was caused by oil low output resulting from the Iranian Revolution and 1990 the Gulf War. It is clear that previous recessions were primarily of a geopolitical nature, but the long list of factors today are more reminiscent of 2008 and 2015’s recipes for disaster.  

The great recession of 2008 was caused by a global market collapse with varying effects from one country to the next, causing the suspension of many projects. For oil demand there was a steep drop from $150/bbl to $32/bbl. A major factor that many of us have given a blind eye to which contributed towards the 2008 and 2015 recessions happened to be what I like to call a man-made natural disaster - the banking industry. We cannot ignore the major contribution of bankers and their notorious behaviour which triggered the recession with the sub-prime mortgage crisis.

Whilst the market was still licking its wounds from 2008, another clunking great hit came along. A new challenge arose in the form of shale oil, which affected market share. This caused significant impact in 2016 that resulted in job cuts, tight cash flows, banking panics, and dying businesses which led to monopolisation. OPEC’s decision to rescue the economy by cutting its share didn’t have much of an influence on the market, its contribution will not have many further affects either unless the recipe is broken down and at least one or two ingredients are tossed away. Bottom line supply and demand and geopolitics would be the only reasons for oil price fluctuation and recession in an ideal business world, but we should all agree that wars and decreasing demand are causing shifts that are far too baffling for anybody to make reliable forecasts. 

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