OPEC members watched the situation with keen attention. They were ready to activate additional production capacity immediately if prices approached $100 a barrel. This would be the first time since 2022, when they last acted together.
Why have these tensions swirled and how significant an oil producer is Iran?
Last year, Iran regained its position as OPEC’s third-largest oil producer at around 3 million barrels per day. The American “game” with the sanctions against Iran with the export of oil is extremely interesting. In practice, these sanctions are not strictly enforced. Last year, Iranian assets in the amount of 6 billion dollars in South Korean banks were released, which was a hidden form of toleration of Iranian production, which definitely affected the international markets. On the other hand, Iran and Saudi Arabia are traditionally on bad terms, and the Saudis are the number one producer, but last year, the two countries, quietly, made mutual compromises and they reopened their embassies, which also pushed the price of oil down.
Iran has proven natural gas reserves of 34 trillion cubic meters, representing nearly 18% of the world’s reserves, which ranks it second only to Russia. We should note that the above information only concerns land reserves, excluding those in the Caspian Sea. If Iran maintains its own gas consumption at current levels, its own reserves will last for the next 162 years. Iran is the fourth largest consumer of gas in the world.
There should be absolutely no doubt that new, uncompromising sanctions on Iranian exports will seriously disrupt the global balance of supply and demand for oil and gas, but whether this will be dramatic we will see a little further down in the commentary.
Iran’s largest trading partner is China. The two countries have extremely historically solid established business relations. The Chinese are just as good at working with Iraq. It can be said that they are the only country in the world that works normally and with two countries, which is a paradox.
Globally, we should note that oil demand continues to fall and is currently hovering around 102 million barrels per day.
It is almost certain that as sanctions are tightened against both Iran and Russia, despite market logic, the price of oil will correct downwards because US refineries continue to operate at near maximum capacity. Let’s not forget that Saudi Arabia is officially pro-American and the probability that they will join in reducing their daily production in a new OPEC decision is almost zero.
All of the above facts and the expected global economic slowdown almost certainly mean that oil prices will move significantly lower by the end of the year.
The largest American commercial bank, JP Morgan, has published its analysis of the need for the transition of the global economy from fossil to energy based on green technologies. However, according to them, until the world reaches production with zero carbon emissions, annual costs in this direction will have to range between 3 and 4 trillion dollars. Since 2019, investments in green energy have increased threefold. According to the bank’s forecasts, the global peak of oil and gas consumption will be reached in 2030, after which the trend turns downward. We must admit, however, that this analysis strongly contradicts the words spoken by the head of the bank, Jamie Dimon, in 2022: “JP Morgan will continue to invest aggressively in oil companies, because to do otherwise means to put America on the road to hell.”
It is extremely important to note that oil producing companies have traditionally been heavily indebted to banks and investors. The development of an oil field – from its discovery to the organization of production, takes years, which period of development is financed mostly with debts. In this sense, the longer interest rates remain high, the more the efficiency of oil companies will decrease.
What does the above mean for gasoline prices in Bulgaria?
With current gasoline prices averaging around BGN 2.70 per liter for A95, it is very likely that by the end of the year we will see prices below BGN 2.40. We must not forget that the exchange rate of the dollar against the BGN is also important in determining the prices. Currently, the dollar leva quotes are slightly above 1.80 leva per dollar.
I do not expect a significant increase, which means that the possibility of driving on the roads of the country with cheaper gasoline is real.
