With the barrel of Brent Crude at $33.25 and no sign of a change in the supply from Saudi Arabia, where will this lead us?
It could be said that the Saudis are trying to flood the market to put pressure on the Russians and Iran. But Iran is about to increase production by 500,000 barrels a day and I’m sure they don’t care what they get for this because it will be more than they have had since sanctions were imposed, anything they can get will improve their situation. So it is the Russians who will be suffering the most, along with shale and all the other smaller producers.
So how will this impact the economies of the world going forward?
Firstly the glut in supply will last a long time after the production cuts that will happen at some point. Currently investment in oil is being drastically cut and this is where the problem will be in the future.
When the “oil mountain” starts being used, this is when production would normally start being ramped up, but with the current cuts in investment there will be no new available oil fields for some years. My conclusion is that there will then be a reverse situation to now and oil prices will dramatically increase as demand outstrips supply. Will oil prices go above the $100 a barrel or will even this price end up being seen as low? High oil prices will only line the pockets of the oil production countries whilst we all suffer with the interest rate rises that will probably follow.
Hold onto your hats folks, a few years from now we could be forced into another recession all based on low oil supply!