After the price of a barrel reached $ 71 ... What is the future of oil prices?

Oil prices continue to rise to the levels they were at at the end of 2019, and it is likely that prices will decrease again in the coming period, according to a number of experts.

In a report published by the Russian newspaper Izvestia, the writer Alexei Topalov says that the price of a barrel exceeded $ 71 on March 8th, but he did not maintain this circumstantial increase, and it is expected that next April OPEC countries will agree. Plus "(OPEC +) increases its production, and this is what pushes prices down again.

It is noteworthy that Brent crude fell in morning trading today, Wednesday, less than 0.1%, to settle at $ 67.50 a barrel, while US West Texas Intermediate crude rose 0.2%, to reach $ 64.12 a barrel, according to Reuters.

Circumstantial elevation

On the eighth of this month, Brent crude futures prices exceeded the $ 70 barrier, a level it has not reached since late 2019, while West Texas Intermediate crude has reached about $ 68 a barrel in April shipments.

But on the same day, prices fell again, as the price of Brent crude on the London Stock Exchange fell to $ 69.62, and the price of WTI crude fell to $ 66.36.

The writer notes that this circumstantial rise came in the wake of the attack launched by the Houthis on Saudi Arabia, in addition to strong indications of economic recovery thanks to the stimulus measures taken by many countries, and the commitment of Western countries and OPEC Plus countries to limit production.

Target Saudi Arabia

The Houthis in Yemen launched ballistic missiles on Saudi territory, along with drones loaded with explosives. Ras Tanura port, which is one of the largest oil shipping ports in the world, was hit in this attack, in addition to the damage to the infrastructure of Aramco.

Also, an oil storage facility was targeted, but the attack did not result in any material or human damage, according to the Saudi media, and the Houthis also targeted military sites in the port of Dammam and the governorates of Asir and Jizan, according to the group's spokesperson.

Andrei Polishchuk, an analyst at "Raiffeisenbank", says that this attack is not expected to impede the flow of oil, which explains the return of prices to decline rapidly, in addition to that, Saudi Arabia has accumulated enough crude reserves to be used when necessary.

When the Houthis fired missiles at Saudi territory and hit Aramco, they did not obstruct the flow of oil (Reuters)

What determines prices?

Every attack by the Houthis leads to a rise in oil prices, but this rise is always short-lived, and experts confirm that there are other factors also that control price fluctuations.

Stanislav Mitrakovich, an expert at the University of Financial Studies in Moscow, says, "The OPEC Plus countries recently decided not to increase production, with an exception being granted to Russia and Kazakhstan, which will increase their production in April, with a value of 130 thousand tons per day for the first and 20 thousand tons for the second, but the surprise was Saudi Arabia intends to extend its voluntary commitment to reduce production by one million barrels per day in April.

The kingdom had committed to the ceiling agreed upon in February and March, which supported the rise in prices. All observers had expected Saudi Arabia to unleash production in April.

There is another factor that led to the rise in prices, which is the vaccination campaigns against the Corona virus that were launched in most countries of the world, in addition to the stimulus plan announced by President Joe Biden to revive the American economy, a step that will have a positive impact on all sectors, the first of which is oil, according to experts. .

Expectations

Mitrakovic believes that there are factors that may negatively affect the oil sector, including the limited success of vaccination campaigns, and the possibility of some countries failing to limit the spread of the virus.

In addition, Saudi Arabia may consider itself free from any commitments to limit production by May, and thus the OPEC Plus alliance will be forced to review the quotas granted to each country.

This may also lead to disagreements between countries, if it appears that the rise in prices will particularly benefit the shale oil sector in the United States, and therefore Mitrakovitch warns that all these factors, with the increase in economic threats, could easily lead to the collapse of the OPEC Plus alliance.

Even if the coalition manages to adhere to its policy aimed at limiting production, and Saudi Arabia continues its voluntary commitment to the agreed ceiling, the goals set for this alliance will not be achieved by the end of 2021 and the beginning of 2022, as was hoped in the past, but rather by the end of the third quarter of next year.

The writer pointed out that the slow recovery in global oil demand levels will be an additional factor impeding any significant rise in the price of a barrel above the level of $ 70.