September 1, 2021, | AtoZ Markets-It is indisputable the oil is a major player in commodities. That is why we wanted to write this article, and tell you that Oil prices are influenced by 15 major factors.
What Is OPEC and What Is Its History?
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization. It was created at the Baghdad Conference on September 10-14, 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
Currently, the Organization has a total of 13 member countries:
Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela.
According to current estimates, 79.4% of the world's proven oil reserves are in OPEC member countries. The bulk of OPEC's oil reserves are in the Middle East, with 64.5% % of total OPEC.
OPEC Member Countries have significantly increased their oil reserves in recent years, for example, by adopting industry best practices. Also, conducting intensive exploration, and improving recoveries. As a result, OPEC's proven oil reserves currently stand at 1,189,800 million barrels.
Why Are OPEC Meetings Important?
As we write this article, the 20th OPEC and non-OPEC Ministerial Meeting is taking place.
To clarify something, in 2016 the 13 OPEC countries achieved a new alliance, in which they included 10 new countries led by Russia, which they would call OPEC + (or also called non-OPEC countries), and now, in each meeting, there are 23 participating countries.
Meanwhile, Non-OPEC countries are Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan.
The OPEC meetings are important because they determine the measures to control supply and demand in the price of oil.
Crude-oil watchers aren’t expecting any major changes to OPEC+’s output plans. In addition, many analysts believe that even with an increase in production, oil inventories will see a drawdown this year as demand recovers from the pandemic.
Oil: Current Supply and Demand
According to a Reuters Poll, in August 2021, OPEC oil production rose to its highest level since April 2020. OPEC pumped about 26.93 million barrels per day (bpd) in August 2021, (about 210,000 bpd more than the July estimate).
Likewise, production has increased every month since June 2020, except for February. For its part, the OPEC + alliance has eased the record production cuts agreed in April 2020 as global demand has recovered.
By size, at 180,000 bpd, Saudi Arabia posted the largest increase. The second-largest increase came from Iraq, which also boosted exports in August.
Likewise, the production also grew in Angola, the United Arab Emirates (with an increase of 40,000 bpd), and in Kuwait with an increase of 20,000 bpd.
On the other hand, among the countries with the lowest production, the biggest drop was in Nigeria, with a drop of 100,000 bpd. Also, Iran, which has managed to increase exports since Q4 despite US sanctions, posted a 50,000 bpd decline.
What About the United States and Oil?
The phenomenon of the United States and oil has been incredible over the years. For years, the first economy was a strong consumer of black gold, but everything was changing. From being a consumer, it became a major new oil producer.
However, the type of American oil is special. The name by which it is known is shale oil, and it is changing the world energy landscape, with strong economic, geopolitical, and climatic consequences.
Oil Prices Are Influenced by 15 Major Factors
After a complete analysis, we can say that the 15 major factors affecting oil are:
- Climate changes at the global level
- Wars and armed conflicts
- Geopolitical tensions
- Censorship of the media
- The shift to new alternative energy sources
- Financial crises
- Complex global health processes
- The imbalance between supply and demand
- The delay in agreements between OPEC + countries
- All the news from China and a decline in its growth
- Drastic changes in the price of the dollar
- Stock market speculation
- Global growth fears
- New Tax Announcements
- News about spills or processes that affect the environment
Oil Price Projections
After the impact of the global pandemic, oil prices have been strengthening in the hope of economic recovery.
- Brent oil in 2019 = +29.01%.
- The Brent oil price in 2020 = -21.75%.
- Brent price oil in 2021 = + 39.94%.
- 1-year BRENT oil evolution = + 57.54%.
- WTI oil in 2019 = +37.64%.
- The WTI oil in 2020 = -20.71%.
- WTI oil in 2021 = + 42.55%.
- 1-year evolution = + 60.46%.
The Energy Information Administration (EIA) forecast that Brent crude oil prices will average $72 per barrel in the second half of 2021 and $66 per barrel in 2022. Also, the prices are increasing due to higher demand as more people are vaccinated against COVID-19. meanwhile, OPEC is gradually increasing oil production after limiting it due to a decreased demand for oil during the pandemic.
As a reminder, two types of crude oil are the benchmark for all other oil prices. They are WTI at Cushing and North Sea Brent.
The WTI reference at Cushing comes from the US. and is the reference used for trading American oil prices. Meanwhile, North Sea Brent oil comes from Europe, Middle East, and Africa and is the benchmark for international oil prices.
Likewise, the EIA forecasts WTI prices at $65.93 per barrel in 2021 and $62.37 per barrel in 2022.
Oil is a great tool for your trading, but you should be aware of the major oil prices factors that change every day. You should always be on the lookout for news about influencing factors that can change oil price projections.
As we can see, many factors affect the behavior of the oil price every day and depending on the benchmark you want to use, you should follow them closely. Keeping a close eye on global news is your great tool to do so.
In commodities, it is very important to know every day the variations in price stability and market sentiment. Also, a study on which macroeconomic variables have changed the dollar and their influence on investors' risk management.
In conclusion, the forecast for oil prices in 2021 is for stable growth, assuming the global recovery is maintained.
We hope you enjoyed this article on the 15 main factors that influence the price of oil. Leave us your comments to help you improve your trading.