The UAE’s award last week of a series of massive drilling contracts to increase its crude oil production capacity from around 4 million barrels per day (bpd) to 5 million bpd highlights that the main market risk from an oil trader’s perspective is still biased towards more supply amid an uneven rebound in demand after the peak of the global COVID-19 crisis in 2020. Short and medium In the longer term, significant increases in supply are likely to come from persistent failures in OPEC’s decision-making and implementation structure, and in the longer term from a potential influx of new Iranian crude into official oil markets and oil markets. ‘increases from non-OPEC crude oil producers.
This trader-centric view is the fundamental reason why, despite the recent huge buys in the crude oil market by some major investment banks and their fund manager clients (and their frantic trough oil auctions) in sight to hit the At US $ 80 a barrel, crude failed to significantly threaten that level or the once stable US $ 100 a barrel price that prevailed for years before the Saudis launched the War of the Barrels. 2014-2016 oil price. This inability to threaten these key price points is also a function of the political reality that while allegedly environmentally friendly US President Joe Biden could, in theory, be happy to see oil prices rise to reduce the gap between retail prices and more “green energy” alternatives, in the cold light of political reality, the fact remains that he is fully aware of the harmful impact of a such price hike on any chair.
As has been very clearly demonstrated under the administration of former President Donald Trump – but this concerns all US presidencies in recent years – the senior White House official does not, in general, want oil prices to rise. on the rise. The economic reason is that for every US $ 0.01 increase in the national average price of gasoline in the United States, it is estimated that more than US $ 1 billion per year in discretionary additional consumer spending is lost. . Generally, it is estimated that each change of US $ 10 per barrel in the price of crude oil results in a change of US $ 0.25 in the price of a gallon of gasoline. Based on more recent historical precedent, a barrel price of Brent oil of US $ 90-95 equates to approximately $ 3 US per gallon of gasoline and US $ 125-130 per barrel of Brent equates to approximately $ 4 US per gallon of gasoline. The “danger zone” for US presidents starts at around US $ 3.00 per gallon and at US $ 4.00 per gallon they are advised to pack their bags on Pennsylvania Avenue or start a war to hijack it. public attention. The point was made by Bob McNally, former energy adviser to former President George W. Bush: “Few things terrify an American president more than a fuel spike. [gasoline] prices.”
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This is the main reason why an unofficial White House oil price cap of around US $ 75-80 a barrel of Brent has been applied since the end of the 2014-2016 oil price war. On the one notable occasion where the price of Brent crude oil rose significantly above the US $ 70 per barrel level for an extended period and seemed to threaten the ceiling – in the second half of 2018, the Saudis hiked prices together with Russia – President Trump sent the first threat message in a speech targeting the Saudis. The post made it clear that, from a US perspective, Saudi Arabia was in violation of the 1945 founding agreement on Bitter Lake between Roosevelt and Abdulaziz and, therefore, endangered US support for the family. reigning Al-Saud as the monarchy of Saudi Arabia. This came shortly after a similar comment from Trump in a speech to the United Nations General Assembly: “OPEC and the OPEC countries are, as usual, ripping off the rest of the world. world, and I don’t like it. Nobody should like it, ”he said. “We stand up for a lot of these nations for nothing and then they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices. We want them to start lowering prices and now they have to contribute substantially to military protection. “
Oil’s inability to exceed these key levels is also a big reason why producers in the U.S. shale oil sector and their Wall Street backers are not under any pressure from the government to increase production at this time. If Brent crude oil started to break above the US $ 80 per barrel level for an extended period of time and appeared to be heading towards US $ 90-100 per barrel, however, this status quo would likely change very quickly. At the same time, enormous pressure would be exerted by the White House on Saudi Arabia and the rest of OPEC producers to increase production and lower oil prices, as OilPrice.com has repeatedly pointed out. .
Besides the domestic political reasons why the US government is happy to welcome a large increase in UAE crude oil production capacity in a relatively short time frame, the UAE’s ambition also aligns perfectly with the new policy. from Washington to the Middle East as a whole, which began with the “normalization of relations” agreements reached between the United States, Israel and various Arab states in the final days of Donald Trump’s presidency. In its most basic terms, this policy aims to engage with anchor Arab states that are not already too tied to the creeping China-Russia-Iran axis of power, while also trying to at least partially loosen the grip of Beijing and Moscow on Iran (and therefore Iraq). If the policy succeeds – although the part relating to Iran and Iraq also appears to fail despite clearly being worth a try – the United States will also be able to reduce any dependency further. significant to Saudi Arabia, at least while it is under the control of Crown Prince Mohammed bin Salman. In all eventualities, however, the UAE is central to the U.S. plans, which is why it was one of the first countries to be approached for the Normalized Relations agenda.
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Since then, the UAE has broadened and deepened its relationship with India – which the United States sponsors as the main regional political and economic alternative to China – embarked on a vast project of economic expansion (” Operation 300 billion ”), established a new benchmark exchange platform for its oil (ICE Futures Abu Dhabi platform) in partnership with the United States-based Intercontinental Exchange, and began to expand the export center of Fujairah oil as a counterpoint to Iran’s new oil export route between Goreh and Jask. More generally, the UAE has also removed previous obstacles to the rapid realization of its oil ambitions by reorganizing its Supreme Petroleum Council and increased its activities as part of a joint intelligence initiative between the UAE and Israel. (and, by extension, the United States) from the purchase of ancillary commercial and residential properties in Khuzestan Province, southern Iran. The area is a vital hub for Iran’s oil and gas reserves and the influx of businesses registered in the UAE, especially those based in Abu Dhabi and Dubai, but largely funded by Israel. , provides an advanced operating platform for various ongoing intelligence gathering operations. . Based on this, last month saw a landmark $ 510 million deal with Italian Saipem to increase the capacity of the UAE’s flagship plant, Shah Sour Gas Plant, which will ensure the UAE becomes self-sufficient in gas. It is a question of protecting it from any external pressure which could be exerted on it by the great gas powers of the region, in particular Iran, if it did not have this self-sufficiency.
Exactly the same theme of the large contracts awarded to companies in countries supporting the new United States’ Middle East policy can be found in the award last week of $ 764 million in drilling contracts to boost crude oil production. to 5 million barrels a day ASAP. no later than 2030. The main oil company in the United Arab Emirates, the Abu Dhabi National Oil Company (ADNOC), through its offshore business unit, awarded the contracts to the US companies Schlumberger and Halliburton, in addition from its own ADNOC borehole. The contracts will provide integrated, un-rigged services on six of ADNOC Offshore’s artificial islands in the Upper Zakum and Satah Al Razboot fields, according to ADNOC. “These significant rewards for integrated services without a drilling rig will improve the efficiency of drilling and related services, and optimize the costs of our offshore operations as we scale up our drilling activities to increase our production capacity. and enable gas self-sufficiency for the United Arab Emirates, ”ADNOC Upstream Executive Director, Yaser Almazrouei, concluded last week.
By Simon Watkins for Oil chauffage
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