Even though the Saudi-Iran tensions only managed to generate
a “slight” trading price rise in crude oil a few days ago, does crude oil’s
current lack of geopolitical leverage bad for the global economy?
By: Ringo Bones
Since the Saudi Arabia-Iran tensions due to the execution of
a prominent Saudi Shia cleric Sheikh Nimr al-Nimr only managed a “slight”
increase in the trading floor price of crude oil despite of the subsequent
riots that had resulted in a fire that gutted parts of the Saudi embassy in
Tehran, crude oil prices still continued its inevitable terminal decline during
the second week of January 2016. If the current Saudi-Iran tensions happened
back in the 1980s or the 1990s, crude oil prices would have tripled by now. But
given the lack of crude oil’s geopolitical leveraging that has global economic
repercussions that it used to have back in the 1980s, 1990s or even during the
George “Dubya” Bush administration part of the first decade of the 21st
Century, does the current downward trend in crude oil prices spell bad news for
the global economy?
The current bargain basement prices of crude oil can be
squarely blamed on the current “oil glut” that the world had been experiencing
since the latter half of 2014. Given the high-level new oil strikes in the
state of California back in 2013 and the American and Canadian tar-sands crude
oil extractions that has since become economically viable during the past few
years which made the United States now the world’s number one producer of crude
oil and Capitol Hill even recently voting to end the Federal ban on U.S. oil
exports is just one of the pieces that resulted in our current global crude oil
supply glut. During the last OPEC meeting of 2015 where Saudi Arabia and the rest stuck to keeping its current output levels in the hopes of driving America's tar-sands crude oil extraction industry out of economic viability only made the situation work in America's favor. As Iran is now slated to reenter the global crude oil export
market as a “reward” for the recent Nuclear Deal – the global crude oil supply
glut will likely to worsen – rather than get better – further into 2016.
A few hours ago, crude oil hits 33 US dollars per barrel –
quite a far cry from 18 months ago when it used to trade within the 100 US
dollars per barrel mark not to mention that “extreme peak” back in July 2008
when crude oil hit the 147 US dollar per barrel mark. Overall, crude oil lost
70-percent of its value since 2014 thanks to the global supply glut and the
waning demand due to improvements in renewable energy power generating systems
like wind and solar during the past 10 years. Not to mention that the ongoing downward trend in global crude prices caused most of the trading losses incurred in 2015.
