The Price of oil was declining until the recent conflict between Iran and Israel. The escalation of tensions in an important region for crude oil production caused the barrel of Brent to soar, although not enough thanks to supplies from the United States.
What is the US doing? The United States has begun to accelerate its oil supply. In September, it bought 6 million barrels from Exxon Mobil, Shell and Macquarie for more than $411 million, a cheap price thanks to the low prices that operated before the conflict in the Middle East. Starting in October, you will only have enough money in your Strategic Petroleum Reserve (SPR) purchasing funds to purchase about 2 million more barrels. The goal is to continue filling the SPR by asking Congress for money or canceling future sales.
The SPR strategy. The United States Strategic Petroleum Reserve is the world’s largest emergency crude oil reserve, created in 1975 after the 1973 oil crisis. The purpose is to protect the US economy from global conflicts that influence oil supplies. , as occurred during the Gulf War, Hurricane Katrina and the Covid pandemic.
SPR crude oil is stored in natural underground salt caverns in the states of Louisiana and Texas, on the Gulf of Mexico coast. The last largest sale in history was in 2022 when President Joe Biden released 180 million barrels in response to the price increase caused by the Ukraine war.
How is the price of oil? On Wednesday, October 2, at five in the afternoon Spanish peninsular time, there was an increase of more than 2% and another of 6%, due to Iran’s possible attack on Israel in retaliation for the death of the leader of Hezbollah and the invasion Israeli in southern Lebanon. However, the increase in United States oil reserves with 3.9 million barrels and the announcement by OPEC+ to maintain its plan to increase production was able to limit the rise in prices and moderate the market.
Opec+ and Iran. Given the escalation of the conflict, the Organization of the Petroleum Exporting Countries and its allies (OPEC+, the “plus” is due to collaborating non-member countries such as Russia, Kazakhstan and Mexico) have claimed to have sufficient capacity to cushion the impact of a complete loss of oil supply from Iran, which produces around 3.2 million barrels per day. However, if other countries in the Persian Gulf, such as Saudi Arabia or the United Arab Emirates, enter the conflict, OPEC+’s capacity would be limited to say the least.
On the other hand, OPEC+, led by Saudi Arabia and Russia, has decided to maintain its plan to increase oil production starting December 1 to get rid of the strong pumping cuts of the last two years. However, the conflict is increasing and will cause a rise in the price of barrels without being able to stabilize.
Has China spoken out? From the largest oil importer in the world we only have information from last week in which the People’s Bank of China had to reduce the required reserve ratio by 0.5%. It also lowered interest rates to stimulate its stock market and the real estate sector. Furthermore, China’s economic package is an important factor, because if demand increases and supply remains limited, it could generate a positive boost in crude oil prices. However, there are no updates yet.
How does it affect our consumption in Europe? The increase in the price of Brent, the benchmark oil for Europe, has reached almost 77 dollars per barrel due to the conflict situation. For this reason, any interruption in the supply of this barrel in the Middle East could increase energy costs, because its price is linked to the global oil market, even if it is exported “locally” as it is in the North Sea.
In addition, it impacts inflation in European countries by raising the prices of basic goods and services for consumers. The effects will be felt in transportation and heating, but there are alternatives that are already bearing fruit.
Energy alternatives in the face of oil volatility. Investment in clean energy has grown significantly, surpassing fossil fuels. These renewable systems are increasing in self-consumption in different European countries. Specifically, in Spain we are seeing how the use of renewables impacts our energy system. In addition, the adoption of electric vehicles and other energy efficiency measures also contribute to reducing dependence on crude oil.
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WorldOfSoftware| The world promised it would be happy with the drop in oil. The conflict between Iran and Israel has drastically cut it