Published : Dec. 16, 2014 - 21:01
LONDON (AFP) ― The oil market faces an uncertain outlook in 2015 as tumbling prices resulting from global oversupply stoke geopolitical tensions in key producers of crude, analysts say.
Oil prices have lost around half their value since June, punished by abundant supplies, a stronger dollar and weak demand in the faltering world economy.
Losses accelerated in late November when the Organization of Petroleum Exporting Countries ― which pumps out one-third of the world’s oil ― decided against cutting its output despite the supply glut.
Prices subsequently hit a series of five-year lows in London and New York, rocked also by 2015 oil demand forecast downgrades from both OPEC and the International Energy Agency watchdog.
A fuel nozzle is placed into a vehicle at a gas station in Guildford, England. (Bloomberg)
At the OPEC meeting on Nov. 27, kingpin Saudi Arabia and other Gulf monarchies opposed a cut to the cartel’s daily output ceiling of 30 million barrels.
Analysts say they want lower prices, even if it slashes incomes, to counter the rise of U.S. shale oil ― which is more expensive to produce and eats into OPEC’s market share.
However at the other end of the scale, oil producers Venezuela, Nigeria, Iran, Iraq and Russia are desperate for prices to rise so they can balance their books and salvage their teetering economies.
In Venezuela, plunging crude oil prices have already sparked social unrest and political uncertainty.
Following the OPEC meeting, Venezuelan President Nicolas Maduro ordered his government to slash the budget of his oil-dependent and economically weak nation.
In Russia, the tumbling oil market ― combined with Western sanctions linked to the Ukraine crisis ― has sparked a collapse in the ruble.
The plunge in crude prices since June has hit Russia particularly hard, as half of the country’s revenues stem from energy exports.
Russia’s central bank hiked its interest rate for the second time in a week on Monday in an attempt to halt the ruble’s plunge, which has sparked huge rises for consumer goods.
Norway, on the other hand, unexpectedly cut interest rates on Thursday in an effort to counteract the impact of plunging oil prices and stimulate the Nordic nation’s oil-dependent economy.
In the Middle East, Iraq ― which is battling Islamic State militants ― will take a major hit from the plunging cost of crude, according to expert Richard Mallinson at consultancy Energy Aspects.
“For now the Iraqi prime minister (Haider al-Abadi) is managing to hold together his political coalition and has halted IS advances with various international support,” Mallinson said.
“Iraqi politicians will find it difficult to cut spending in the current context and so the country is potentially facing a serious economic crisis in the next year or two.”
Added to the picture, Iran ― the second biggest oil producer in the 12-nation OPEC cartel after kingpin Saudi Arabia ― is gaining increasing power within Iraq.
“Iran is getting even more influential in Iraq, and those two countries together could start to challenge the level of Saudi crude oil exports in coming years,” said Petromatrix analyst Olivier Jakob.
At the same time however, US lawmakers could decide next year to impose fresh sanctions on Iran over its disputed nuclear energy program, which could continue to weigh on the nation’s own oil exports.