Today, the price of crude oil in the United States rose to more than $75 (£57) per barrel amid a war of words between Donald Trump, the President of the United States of America, and OPEC, the oil cartel, and concerns of production losses in Venezuela and Iran.
For the first time since 2014, the prices for West Texas Intermediate Crude rose to $75 per barrel on Tuesday, before going back to approximately $73 per barrel.
Iain Reid, a senior oil and gas equity analyst from Macquarie, said that the price increases were driven by restricted supply and strong demand.
He stated: “The reasons why crude is reasonably strong at the moment is there is very good demand growth out there and over the last year-and-a-half there has been compliance with the reduced production by Opec and non-Opec members that has cut 1.8m barrels a day from the supply side of the equation.”
Recently, the Organisation of Petroleum Exporting Countries (Opec) has agreed to boost the oil supplies.
Last Saturday, Trump posted a tweet saying that he had asked King Salman of Saudi Arabia to raise the oil production by as much as 2 million barrels, which he disclosed that Salman had agreed to.
His tweet read: “Just spoke to King Salman of Saudi Arabia and explained to him that, because of the turmoil & dysfunction in Iran and Venezuela, I am asking that Saudi Arabia increase oil production, maybe up to 2,000,000 barrels, to make up the difference…Prices to high! He has agreed!”
An oil & gas research analyst at Cantor Fitzgerald, Ashley Kelty, said that the fluctuations in the prices of oil were largely down to the uncertainty that is caused by the rhetoric of President Trump.
He stated: “It’s mostly to do with the volatility coming from the rhetoric between the US and Opec. It all kicked off at the weekend with Trump claiming the Saudis had agreed to an extra 2m barrels a day which is physically impossible, they just can’t do that.”
Kelty noted that such an increase would take years to achieve, taking the production of Saudi beyond the record heights that it achieved in 2016.
Even with a boost in production by the likes of Russia and Saudi Arabia, the oil supply will likely remain to be largely static due to the declining production in Venezuela and the international sanctions imposed on Iran.
He added: “Venezuelan production has fallen off a cliff and there is no way they are going to arrest the decline so the actual impact of the Opec agreement a couple of weeks ago is effectively getting them back to the starting position, it doesn’t really add an awful lot to the market when you take out Iran and Venezuela.”
Reid stated that he anticipates that the oil will stay around its current price, with a potential increase to $80 per barrel.
He stated: “We have an $80 per barrel price for oil in the medium term and we are pretty much at that level. Some people are speculating it could be at $100 with any major political shocks.”
Kelty added: “I think it will trade in the $70 to $80 range but it will be very volatile.”
The shares of Shell and BP both closed up today after observing strong spikes when the oil price was at its highest. The share price of BP closed up by 1.58 percent while Shell’s closed up by 0.6 percent.