When the UAE said it was leaving OPEC so it could boost production as much as it wanted, it sparked speculation, yet again, that OPEC was falling apart. The peace deal between the United States and Iran was a done deal in the eyes of oil traders, and the race for market share was on. Then the missiles started flying again, the U.S. president said the ceasefire is dead, and long-term oil disruption in the OPEC heartland came to the fore.
Reuters' Ron Bousso earlier this week suggested OPEC was on course to turn "from market manager to paper tiger" as the UAE left, Iraq hinted it might leave, too, if it couldn't be allowed to ramp up production, and other Gulf members may be unhappy with leader Saudi Arabia because they also want to pump more while the Saudis prioritize restraint.
The suggestion that OPEC may end up as a loser from the Iran war and the massive global oil disruption it caused hinges on two ***** umptions, however. One is that demand for oil will be recovering much more slowly than supply, as laid out in a series of reports warning of a glut as stranded tankers began to leave the Strait in Hormuz after the U.S. and Iran struck their preliminary ceasefire deal in mid-June.
That ***** umption is an interesting one based on history and the fact that when oil prices fall, demand recovers quite quickly, given the centrality of the commodity for the global economy—even those parts of it that have been hard at work to reduce their reliance on oil. In fact, history suggests it is the opposite: demand is slow to decline when prices surge, as evidenced by the series of emergency measures that governments around the world rushed to implement to secure oil supply for their economies, including stock draws and rationing.
But there is another ***** umption here, and it is a far more damaging one, potentially. This is the ***** umption that the ceasefire deal would hold, which we have just seen is not the case. As the U.S. started bombing Iran again, following Iran's attacks on ships in the Strait of Hormuz that had refused to follow orders of the country's armed forces that control the waterway, that ceasefire deal was dead. Now, even Reuters' Bousso is talking about long-term disruption in global oil supply.
Reuters' Ron Bousso earlier this week suggested OPEC was on course to turn "from market manager to paper tiger" as the UAE left, Iraq hinted it might leave, too, if it couldn't be allowed to ramp up production, and other Gulf members may be unhappy with leader Saudi Arabia because they also want to pump more while the Saudis prioritize restraint.
The suggestion that OPEC may end up as a loser from the Iran war and the massive global oil disruption it caused hinges on two ***** umptions, however. One is that demand for oil will be recovering much more slowly than supply, as laid out in a series of reports warning of a glut as stranded tankers began to leave the Strait in Hormuz after the U.S. and Iran struck their preliminary ceasefire deal in mid-June.
That ***** umption is an interesting one based on history and the fact that when oil prices fall, demand recovers quite quickly, given the centrality of the commodity for the global economy—even those parts of it that have been hard at work to reduce their reliance on oil. In fact, history suggests it is the opposite: demand is slow to decline when prices surge, as evidenced by the series of emergency measures that governments around the world rushed to implement to secure oil supply for their economies, including stock draws and rationing.
But there is another ***** umption here, and it is a far more damaging one, potentially. This is the ***** umption that the ceasefire deal would hold, which we have just seen is not the case. As the U.S. started bombing Iran again, following Iran's attacks on ships in the Strait of Hormuz that had refused to follow orders of the country's armed forces that control the waterway, that ceasefire deal was dead. Now, even Reuters' Bousso is talking about long-term disruption in global oil supply.
4 months ago
