Current oil prices: Need-based or greed-driven?

A little over two years ago (April 20, 2020), Brent crude was selling at US$26 per barrel. Notably, it was due to the pandemic, thus, health crisis driven. In fact, as some pundits then said, it was not just that the demand for oil declined. The “demand didn’t destruct, it disappeared.” Clearly, therefore, the selfish option of oil producing countries (both OPEC and non-OPEC members) of reducing outputs to raise prices was not possible then.       

Yes, the inactivity was globally felt. To recall, except for a few notorious citizens who helped undermine the welfare of our health care professionals and other front-liners and drained our meager resources, we heeded our authorities’ call for discipline. So, we stayed at home. Then, our respective communities were on a lockdown. 

Obviously then, we did not have any productive activities. Simply put (except for a few essential businesses), since most of us were not reporting for work or were immobilized, stores and offices, as well as, plants and factories were closed. Consequently, the demand for non-essential products and services disappeared. 

Admittedly, however, there were companies whose businesses’ unexpected growth were largely driven by the pandemic. These were companies whose businesses directly address the basic or diversion needs of people who were forced to stay at home. 

Among others, these were Zoom, Amazon, Netflix, Teladoc and Shopify. Yes, even until now, we can all see and feel these companies’ influences in our midst. Inarguably, even ordinary folks, know online retail companies like Amazon. Locally, e-commerce or online retail platforms are sprouting and are into their own sorts of competition. Just like the usual bricks and mortar businesses that we’ve seen growing up, they are also on sale, more often, to increase traffic or patronage.

Also, when the availability of the vaccine was announced on November 9, 2020, shares of some companies (like cruise operators, airlines, etc.) that were hibernating during the pandemic rose considerably. Notably, most of these were companies that were in the travel and tourism industry. 

Indeed, then, both big and small businesses were hopeful to open again. Among them were the oil producing countries. Obviously, because they endured the painful effects of global inactivity. 

Why? To recall, in 2008, Deutche Bank calculated how high oil prices have to be for OPEC and some non-OPEC countries to maintain their budgets. Iran and Venezuela, two of the most vocal and seemingly arrogant countries that are often the first to call for production cuts, need the highest price per barrel of US$95. Russia needs about US$70, while Saudi Arabia, OPEC’s largest producer and de facto ruler, needs about US$55 a barrel.

Considering that the prices of crude oil drifted below US$55 for a longer span during the pandemic and went down to as low as US$29.00 per barrel at its worst, their losses were just so enormous. Thus, the optimism.

Then, Russia invaded Ukraine on February, this year. This compelled USA and the European Union to impose sanctions on Russia. As Russia is a major supplier, oil deliveries were disrupted. Thus, oil prices skyrocketed. So that, in just a little over two years, from a low of US$29.00, Brent Crude is now hovering around US$119 per barrel. 

Undeniably, a solution is available and crystal-clear, increase production output. The USA did increase its output but the OPEC member countries seem to have a different agenda. They are so adamant and will never yield to the requests of the USA and some European countries for the immediate output augmentation. Given the fact that five of the top ten oil exporting countries in the world are OPEC members, it should have been a surefire solution. These are United Arab Emirates (1), Saudi Arabia (2), Kuwait (4), Iraq (5) and Nigeria (8). Clearly, together with the other nine members, OPEC can substantially address the ongoing output shortages.

There could only be two possibilities why these countries are refusing to cooperate. One is decent and a bit temporary and the other one is downright unethical. On one hand, that there is a need to recover whatever losses they had the past two years. Therefore, once fully recovered, supposedly, they will start augmenting their output to stabilize prices. On the other hand, it could be that they are cashing in on this ongoing situation and is even wishing that the war in Ukraine will last longer to rake in more.  Therefore, greed-driven.