CRUDE OIL Power Rankings & Beyond

Crude Oil is the mother of all commodities for a reason. The factor being that it responds in a definitive form on any driving factors from the major oil economies. We witnessed the rise of oil in the first half of the year due to the barrage of bullish elements. Oil took a beating in May declining in value after opening at $73.56 per barrel. At the time of writing this article, the energy product is trading at $55.64 per barrel after inclining to the highest price of $76.87 per barrel.

Various economies around the world can be included as major drivers of crude oil. However, in March, CME Group formulated a list of the top five economies who matter the most for the price of crude oil. The original list in descending order was as follows:

• USA
• Russia
• Saudi Arabia
• Iran and Iraq (Tie)
• Venezuela

The list changed in late May as CME Group updated the names as per the top 5 economies influencing oil. The updated list was as follows:

• Iran
• Russia
• USA
• Saudi Arabia
• UAE

The current list in the power rankings for oil has a new name in the form of China. The updated power ranking list from CME Group is as below:

Saudi Arabia

The Kingdom of Saudi Arabia has two important issues that will inevitably influence the crude oil prices in the not too distant future invariably pushing them to the numero uno spot. Firstly, the country has to figure out how to inject more production back online as soon as possible. Some of the customer orders have already been delayed while few other traders have been asked to accept various grades of crude than originally agreed upon. Secondly, agreement on defense from attacks in the future and whether to retaliate against Iran or other economies who may be involved in the September 13 attack; if Saudi Arabia retaliates against potential adversaries, it would become the largest contributor to drive the crude oil markets yet.

Iran

While potential conflict is always on the scorecard, the US sanctions have crippled Iran leading to a greater fear of international sanctions if the global community confirms that Iran was behind the attacks on Saudi Arabia. For the Iranian government, managing this will be a significant challenge along with the added fact that the nation’s crude oil production has declined to approximately 2.19 million barrels per day according to OPEC. In modern times, a larger proportion of the production ends up in China despite the effects of the sanctions imposed by the US.

China

China is deemed to be a surprise on this list but they have been included because of their demand prowess. The Iranian factor is just a minor proportion for the demand in general. The Chinese economy has been on a slowdown since the escalation of the Trade War with the US and if it continues to slow, their demand for energy will also decline.

USA

The crude oil production from the US has been bracketed between 12.2 and 12.4 million barrels per day effectively coinciding with a perceived drop in the global demand of the energy product. The largest influence on crude oil prices will involve the type of support the nation will provide to Saudi Arabia in any retaliation against Iran or others. If the Middle East is confronted with a serious conflict and the US is directly involved, the crude oil volatility may spike even higher.

Russia

The consensus is that the world’s second-largest crude producer is considered an Iranian ally. So various questions arise. Will Russia pick a side? Will they make up the Saudi deficits in the market due to sustained and continuous damage? Analysts opine that Russia is a wildcard on the list as they could move up or down in a rapid manner depending on how they answer the aforementioned questions.

Rather than depicting the list quantitatively, the power ranking list is listed in a qualitative manner i.e. which factor could drive crude oil prices in a bullish or bearish trend. The names on the list will get updated in the ensuing days as we have just stepped into the weakest seasonal period for crude oil.

Vivek Risal is associated with Mercantile Exchange Nepal Limited in the capacity of Manager in Research and Development Department. He can be contacted at r&[email protected]

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