The global crude oil price has risen in the past week to a four-year high of $84.78 a barrel, sending jitters around the world about a further increase to above $100.
This price per barrel, recorded on Friday, is the highest since October 2014, driven by concerns over a possible reduction in global supply following the imposition of fresh US sanctions against Iran.
President Donald Trump has asked the Organisation of Petroleum Exporting Countries to produce more oil to plug the anticipated deficit.
However, even a promise by Saudi Energy Minister Khalid Al-Falih that the kingdom is willing to tap all of its spare capacity of 1.3 million barrels a day, if necessary, does not seem to be reassuring the market.
In its latest review last month, the Energy Regulatory Commission lowered oil prices on the backdrop of a 1.6 per cent fall in the average cost of Brent crude oil to $75.05 per barrel in August from $76.3 in July.
This is now expected to rise marginally in the next review set for October 14, but the bigger impact will be felt in the November review, if oil price keeps up its momentum.
The World Bank has said that prices are likely to remain elevated the rest of the year and into 2019, affecting prices of basic goods in the region, which is import-reliant.
“Supply-side factors, including declining production in Venezuela and the reintroduction of sanctions on Iran have been the main drivers of the rise in oil prices, although demand has also remained robust. The tightness of oil supply means that prices are particularly susceptible to shocks, and implies that risks are firmly to the upside,” said World Bank economist Cesar Calderon.
Meanwhile, the US State Department issued a statement on Wednesday asking Opec to boost production by tapping the supply buffer it maintains in case of unexpected disruptions. It even gave a figure for how much more the group could pump — 1.4 million barrels a day.
The US president has been putting pressure on Opec’s largest producer Saudi Arabia to pump more, even going as far as threatening the military alliance between the two countries that has underpinned the balance of power in the Persian Gulf for decades. The strategy has worked in one sense.
“We’re doing everything we can, ” the Saudi minister said at the Russian Energy Week conference in Moscow on Thursday. The kingdom’s production has risen from below 10 million barrels a day in the first five months of the year to about 10.7 million currently, Mr Al-Falih said.
November will probably be higher, he said, potentially breaking the Saudi production record set in November 2016. The kingdom is willing to tap all of its spare capacity, Mr Al-Falih said.
But promises like this don’t seem to be reassuring the market. There are echoes of 2008, when prices hit an all-time high above $140 a barrel and pledges of more supply only increased the fear of disruptions.