Crude Oil Prices Reach A New High, Since November 2018. Opec Supply Cuts And Us Sanctions To Blame.

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Beenal Davee
Apr 14, 2019   •  3 views

In the last few months, since November 2018, Crude oil prices have increased by 39%, from $ 50 per barrel to $ 69 per barrel in April 2019. The major reason of this being supply cuts by OPEC countries to pump up the oil prices. There are other reasons like U.S. sanctions on Venezuela and Iran, which has further cut the supply by more than 890,000 barrels per day. There are tensions in Libya as well, where there is civil unrest between east and West Libya controlled by military strongman Khalifa Haftar and UN backed government in Tripoli. There is news on strong hiring in U.S. which boosted market sentiments.

Crude Oil lies in the veins of the global economy. All countries need crude oil for their economic growth. The OPEC countries have together decided to cut crude oil supply to pump up the prices. Libya, an OPEC country, in which there are escalating tensions, which further indicate the possibility of supply cut. Further, U.S. has placed sanctions on two other OPEC countries, further adding to the supply cut.Once a country places sanctions on another country, it typically banns the buying and usage of products (in this case oil) from that country.

All these conditions and strong hiring in U.S. indicating strong global and U.S. economy growth (which increases the demand for oil are signs that the crude oil prices would further increase oil prices. The OPEC is an organization of 16 oil producing countries which regulate the oil supply and prices in the world. There are other countries which also produce oil, like Russia. They form a set of OPEC+ countries. These countries forma cartel and regulate the world oil prices. There are also tensions in Libya, an OPEC country. There is unrest between east Libya and West Libya, in the place where there is an oil rig. If the tensions surmount, the oil rig could stop operating, and hence the possible supply cut. This could further lead to price rise.

As far as India is concerned, rise in oil prices would led to rise in food prices and rise in prices of petrol and diesel. This will lead to higher inflation and lower economy growth. Variables in economy are intricately linked and they are highly sensitive to each other.

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