Reasons for rise in oil price - COMMENT

Baku. 4 October. REPORT.AZ/ Oil price is quickly increasing in the commodity markets during the recent weeks. Thus, Brent crude price in the London Stock exchange increased by 10% or $8 from $78 a barrel to $86 during the past month. The Brent crude was sold for $86.29 a barrel yesterday for the first time since October 2014. The lowest price of Brent crude was recorded on September 6 during the past month ($76.50). On September 24, the oil price exceeded $80 a barrel and continues to increase. Growth during the past week made up 6%.

Experts and traders forecast that the oil price will probably reach $100 a barrel.

Experts say the rapid growth in oil price is caused by some factors.

Chair of the Caspian Center for Energy and Environment at ADA University Elnur Soltanov told Report that the main factor causing rise in oil price is US sanctions against Iran, which are presumed to be imposed early November. However, according to him, the tension was aggravated due to the fact that the sanctions against Iran will be strong, whether China will join the sanctions or not and thoughts that Saudi Arabia is incapable of compensating the oil to be withdrawn from the market as a result of the sanctions.

China was expected to ignore the US sanctions, however, Donald Trump’s administration has reportedly put pressure on China and China join the sanctions. China used to buy a large volume of oil from Iran. The reports caused anxiety in the market. The second is the factor of Saudi Arabia. Thus, Saudi Arabia is an only country with a potential to increase the oil output in the world in a short run. It was revealed that in spite of its capability, Saudi Arabia put only 50,000 barrels on the market in September, while the market need additional 500,000 barrels.

Elnur Soltanov

Директор Каспийского центра энергетики и окружающей среды при Университете АДА Эльнур Солтанов&

Moreover, the expert says another factor affecting market is a decline in the number of drilling rigs in US: “A decline in the number of drilling rigs in US means that no particular increase is expected in oil output in the next months.”

Oqtay Tanrisever, Chairperson of Energy Diplomacy Working Group at the World Energy Council Turkish National Committee (WECTNC), told Report that the oil price is increasing due to recent geopolitical developments in the Middle East and tension in US-Iran relations, short time before sanctions on energy trade.

But will the tension continue in the market in the coming days? How will the prices change as result of this tension?

Soltanov said that such a situation in the market is expected. According to him, the oil price may rise up to $100 and everything may also change: “What is the question now? Saudi Arabia said it can increase daily output up to 1.5 million barrels. However, the market does not trust it and the sanctions against Iran, adding the factor of China, mean that from 500 to 2 million barrels of oil will be withdrawn from the market. However, the demand is still high and continues to increase. As there is no country to compensate the declined supply in the market, another tension arises in the market. Such tension is expected to continue so’.

Oktay Tanrisever noted that the trade war between US and China, as well as regional tension between Saudi Arabia and Iran hint at continuation of rise in oil price in the near future. According to him, with such a growth rate, Brent crude price may exceed $90 in a short period, but it is still unreal to reach $100.

He says that oil price rise will create new opportunities for oil sector.

Oqtay Tanrisever, Chairperson of Energy Diplomacy Working Group at the World Energy Council Turkish National Committee (WECTNC)

Despite the rise in oil price is a positive for Azerbaijan, Kazakhstan, Russia and other oil exporting countries, it will be difficult for oil importing countries such as Turkey, China and some European countries. The rise in prices will cause new opportunities in terms of investments in fields, drilling operations and this growth will have positive results for oil sector.

Oqtay Tanrısevər

Ortadoğu Texniki Universitetinin professoru