Oil War Breaks Out with Slump on Oil Price

Domestic oil price is faced with six consecutive depreciation at present. This is unusual in recent years. 

 

It is commonly regarded that drops of oil price is related to the market. Goldman Sachs insisted that as a bulk commodity, the price of oil is drove by supply-demand relationship. However, the market now also price now is also counted with future supply-demand relationship. On the other hand, the relentless strength of US dollars also greatly influences the oil price. Obviously, it is not possible to explain the continually drops on oil price with just economic factors. In the short run, the major oil consumers like China, India and Europe do not have shrinking demands on oil. It is should not be pessimistic for the market. What’s more, the whole issue will be clear when connecting it with current international political environment. 

 

The oil producing countries are always the victim of decreased oil price. Last week, two main energy exporters, Saudi Arabia and Russia, showed entirely different attitudes on the issue. Saudi Arabia said that it is OK for them to accept a low oil price at 80 USD for one or two years. This indicated obvious adjustment of Saudi Arabia. Putin declared that, the world economy will fall in collapse once the oil price is lower than 80 USD. 

 

Undoubtedly, Putin has felt dizzy due to the slump of oil price. 104 USD is thought as the financial balance for Russia. Russia is one of the biggest petroleum and gas exporters in the world. Its 52% of fiscal revenues come from oil and gas exports. Thus, Russia is the last one that expects decreased oil price. 

 

In recent years, Russia’s tough attitude on issues like Ukrainian crisis has prevented America from fighting back. Nevertheless, the U.S. has trump cards, among which oil war is also included. The quickly breakdown of oil price and even drop to 80 USD is the first battle of America-Russia oil war. 

 

As you can image, the oil export of Russia will not attract EU any more with falling oil price. Even if the relationship is remained, Russia will suffer from more grave economic shock under the dual actions of Western sanction and devalued ruble. 

 

In this petroleum war, Saudi Arabia plays an important role with its No. 1 oil storage in the world. America might have promised a lot to Saudi Arabia on politics this time to make it endure dropped oil price. 

 

It is worth mentioning that the price of any bulk commodities could not drop endless. The recently slump on international oil price do not means the beginning of low-oil-price epoch. The long-term low oil price is also inconsistent with American interest in the long run. After all, America is also becoming the biggest energy exported in the world. How long will the low price last? Maybe just like what Saudi Arabia said, they can bear the current price for one or two years.