Soaring Oil Prices...How It Will Hurt

Soaring Oil Prices…How It Will Hurt

A year ago, if you would have asked anyone about how they felt about the rising oil prices, you would have mostly received positive responses. Up until this year, the increase in oil prices was seen as an indication of growth across the world. But that has certainly changed and how, thanks to a few major points.

OPEC and Russia together managed to curb the excess supply of oil in less than a year and a half which brought things under control in the oil market. Observers kept their hopes up despite the rise as they were confident that the tight oil producers of the U.S. won’t let things run out of hand.

But President Trump’s decision to blow the Iran nuclear deal was something that no one saw coming. The move has created problems for everyone as countries can now make oil deals with Iran on a limited basis and with a lot of caveats attached. Iran’s oil exports will go down because of this by almost 25%, a number that is only going to rise in the days to come because of the sanctions by the U.S. kicking in. Venezuela is another supply source that is facing problems keeping up as there are infrastructural problems within the system and those are not showing signs of getting fixed anytime soon.

Alternative oil sources are not doing too great as well. With a production capacity of 12 million bpd, America will now be producing more oil than anyone else in the world. But the amount of exports though will not allow it to shield itself from the rising oil prices. The number could have been higher but limited capacity is preventing that from happening.

Saudi is mincing words while saying that it will keep prices in check and at the same time, being comfortable with a $100/ barrel price. They won’t be scaling up production until oil reaches alarming prices. All this could potentially lead to another global recession, the likes of which were seen a decade ago.

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