Keeping Oil Prices In Check In A World Afire

"Rational or not, fear is painful and debilitating, and policy makers must endeavour to protect the public from fear, not only from real dangers.

- ranjan tandon

" -Daniel Kahneman, Israeli-American Nobel-winning economist OIL prices are up 17 percent since January this year in a lurking trepidation predominantly revolving around mounting tensions in the Middle East. Though it is reminiscent of the Iranian revolution-led 1979 oil crisis and the 1990 Gulf War, when prices touched preposterous levels, the markets are thankfully devoid of similar mayhem. Apprehensions of supply constraints and disruptions have moved prices higher. While continuing with the production cut of over 2 million barrels per day, the OPEC+ group prefers selling lighter grades with higher margins, thus exacerbating the availability of crude. The situation is compounded with Mexico cutting down exports and imposition of fresh sanctions on Venezuela.

The Ukrainian drone attacks on Russian oil refineries, most recently in the Smolensk region, could affect availability of diesel and gasoline. Though this could bring more Russian crude into the market, in the long run, the lack of refining capacity could lead to paucity of finished products, thus pushing their price higher. The Houthi attacks in Red Sea have added to the uncertainty and costs due to war risk insurance premium.

However, considerable supply exists in Africa. Nigeria holds surplus stocks despite increased domestic consumption post the commissioning of the Dangote refinery near Lagos. Libya resumed production at El Sharara oilfields in late January.

Angola and Algeria continue to dominate as the largest exporters out of Africa while posting incremental production figures.