CRUDE OIL: THE LIFEBLOOD OF THE GLOBAL ECONOMY

CRUDE OIL: THE LIFEBLOOD OF THE GLOBAL ECONOMY

Crude oil is one of the most important natural resources. It is the commodity that has powered the world in the modern age, through its role in electricity generation. Even today, as alternative energy has become far more common, it remains the most widely used energy source. Crude oil is one of the most actively traded commodities today, largely due to its continued central role.

• OIL: SUPPLY AND DEMAND

The largest oil suppliers in the world include the United States, Saudi Arabia and Russia. In recent years the US has extended its position as the leading oil producer by expanding fracking, producing both oil and shale gas. Russia and Saudi Arabia are leading players in the Organisation of Petroleum Producing Countries (OPEC / OPEC+), a cartel that decides jointly how much oil its members will produce.

Demand, or oil consumption is equally important. The US consumes 20 million barrels per day, China, consumes some 16 million bpd. India ranks third on 5.5 million bpd, with demand in the country rising as its economy grows. It’s important to understand who the major players are before looking at the dynamics.

• MARKET DYNAMICS

Crude oil prices are primarily influenced by perceptions of supply and demand. An oversupply coupled with shrinking demand could lead to price falls, while rising demand against restricted supply could push prices higher. For instance, reports suggesting weak demand from major consumers like China contribute to downward pressure on prices, while signs of strong demand could spur oil prices upwards.

• MAJOR FACTORS INFLUENCING OIL PRICES

Production levels: The balance between crude oil production and consumption is an important factor influencing prices. Reports on U.S. domestic production and weekly inventory levels could significantly impact market perceptions.

OPEC: OPEC plays a major role in managing global oil supply. By setting production targets for its member countries, OPEC can influence prices. Saudi Arabia, OPEC's largest producer, could have the most influence over global oil markets, especially when it adjusts its output levels.

Geopolitical events: Political instability in oil-producing regions could lead to supply disruptions that affect global oil prices. Conflicts in the Middle East, or sanctions on oil-producing countries like Iran, Venezuela, or Russia, could create uncertainty in the market, leading to volatility as traders react to potential shortages.

• OILS DOMINANCE TO BE UNDERMINED BY ALTERNATIVE ENERGY?

With alternatives to crude oil increasingly used - including natural gas, nuclear energy, geothermal energy and solar and wind power, the slow transition away from fossil fuels such as oil and coal has already begun. But projections show that half of today’s oil consumption of 105 million barrels per day will endure until 2050. In the short term oil prices are not expected to be significantly impacted by alternative energy.

• OIL PRICES IN 2025

WTI Crude Oil prices have fallen by 6.9% this year. Major factors impacting price movements include:

Fears that US trade policy (tariffs) could cause inflation and an economic slowdown, potentially leading to reduced oil demand

OPEC decision to go ahead with adding 138,000 bpd from April (increasing global supply)

US plans to end the Ukraine war, which could mean sanctions against Russian oil are lifted (increasing supply)

President Trump’s declaration of an energy emergency and intent to increase US oil production

US tightened sanctions on Iran in its maximum pressure strategy on the country

US threatened new tariffs and sanctions on Russia if it doesn’t agree to a deal with Ukraine

OPEC said it would reverse its current plans if market conditions changed

China announced stimulus of almost $180 billion which could trigger an increase in oil demand

US ended Venezuela’s permit to export oil to US, cutting 240,000 bpd from the market

Conclusion –

The future of oil is not in doubt, although oil prices have faced challenges so far this year. However, if US and Chinese growth is in line with current expectations there could be potential for further price increases. As outlined, there are risk factors such as a global trade war and Russia – Ukraine conflict, but OPEC could also step in if oil prices slip below support levels.