Dr.. Elaine R Wald
2022 was a very volatile year for oil prices
Geopolitical events have forced producers and consumers to make significant changes to oil flows around the world
Here are six lessons we learned from the market this year
The year 2022 witnessed great fluctuations in the oil markets. For example, Brent started the year at $83 a barrel and is expected to end the year at $80 levels, but for about six months, it has been trading in triple digit prices.
Geopolitical events have also forced producers and consumers to make significant changes to the flow of oil around the world. For example, Russian oil that traditionally flowed to Europe has been diverted to new markets in Asia. Europe had to find new oil supplies, though it took longer and had higher transportation costs.
Here are six key tips for traders that we learned from the oil market in 2022:
Renewable energy sources cannot replace fossil fuels
Europe suffered a major electricity crisis after it decided to stop buying Russian natural gas and Russian crude oil. Although the crisis continues, more people are beginning to realize that solar and wind energy cannot be stable sources of electricity.
The big question in 2023 is whether policymakers who have been pressing for increased renewable energy production will care about and/or understand the fallacies of their energy transition plans and correct these wrongs to ensure that consumers have access to affordable and reliable energy and heat sources.
Saudi Arabia will not come to the rescue
Despite heavy pressure from the United States, OPEC+ refused to increase oil production to bring down high oil prices. The lesson for traders is that Saudi Arabia can be expected to pursue its own interests and not those of the United States when interests conflict.
After many years of low oil prices, Saudi Arabia (and its allies in OPEC+) benefited from keeping prices high. They have tried to do this by restricting production even if it is uncomfortable for US policymakers and consumers.
OPEC will do nothing to save
Years of low oil prices have affected OPEC+ producers, and many producers have experienced significant cuts in production capacity. Most OPEC+ producers cannot produce as much as their production quotas allow, so OPEC+ quotas do not actually reflect the amount of OPEC+ oil that is in the market.
This means that with the exception of Iraq, Saudi Arabia and the UAE, OPEC+ producers are unable to increase production to bring down prices. It also means that when OPEC+ cuts or increases production quotas, only a fraction of that oil will exit or enter the market.
The United States is not a bailout country
American oil producers can no longer pursue growth at any cost. It now takes longer for production to reach higher levels than it did in 2016 and 2017. The US oil industry has never been a real influential producer in the global oil market because its oil industry is not homogeneous and does not work in unison, but in 2022 producers have reacted Americans are slow on the rise in oil prices.
US production did not reach 11.98 million bpd until August, although it was several months after prices hit triple digits in the spring and summer. Traders should also expect slower growth in output from the US shale industry going forward.
China's demand for oil is critical:
As economies around the world returned to pre-pandemic levels in terms of oil demand, China stuck to a zero-COVID policy that weakened its demand for oil. This helped prevent global demand from exceeding supply in 2022.
Although China is now easing these policies, traders should not expect Chinese oil demand to suddenly return to pre-pandemic levels. China's economy, and thus its demand for oil, remains controlled by the Chinese Communist Party and will not necessarily follow the same patterns observed in other places where economic activity is not centrally controlled.
Developing economies want Russian oil
Europe and the United States attempted to reduce Russia's oil revenues by imposing sanctions and capping the price of Russian oil. These policies disrupted global oil flows but did not prevent Russia from accessing new markets.
Russian oil that used to flow to Europe has been redirected to India - a whole new market for Russia. China increased its purchases of Russian oil. Now Europe buys more oil from the Middle East.
Even if Europe and Russia resolve their problems and resume oil trade, Russian oil will likely continue to flow to India and other new markets. Traders should realize that oil flows have turned around more quickly than expected and that the period of turmoil in the market has been relatively short.
Views 105Added 12/25/2022 - 10:22 AMUpdated 12/25/2022 - 1:54 PMhttps://economy-news.net/content.php?id=31507