For many industry experts and as it is case in Nigeria now, many laymen, the drastic drop in crude oil prices is due to the massive excess supply which far outweighs the demand for the product globally. To anyone who has even the faintest knowledge of economics, that surely leads to a price drop.
Quite simple, right? Not really, if the trend reported by Forbes is anything to go by. In fact, according to Forbes, there is every likelihood that crude oil prices will sink back to its previous nadirs experienced earlier this year. Why is this the case.
The answer lies within an age-long rivalry between Saudi Arabia and Iran, two big shots in the oil production game. However, while Saudi Arabia has the privilege of being the de facto head of the Organization of Petroleum Exporting Countries (OPEC), Iran is not quite well placed politically.
Last year, crude oil experts and economists globally were surprised at Saudi Arabia’s decision to let the market forces continue to dictate prices despite the obvious spikes in production. However, when considered insightfully, that decision should really not have been surprising as it came at the same time as Iran’s return to the oil markets. Such low prices of crude oil would definitely hurt Iran and they did.
However, true to the saying that what goes around comes around, the low oil prices have led to the shut down of several American oil rigs. This has driven market prices upwards again. To make things more interesting, Saudi Arabia is about to launch its IPO for Aramco, the state owned petroleum company. As such, It wants oil prices going upwards. As expected, Iran now feels it has its chance for payback and it is taking it.
Doing everything it can, Iran is ensuring that oil prices remain as low as possible and reduce the success of the IPO. That is what makes the likelihood of an agreement on output freeze very unlikely.
Reports from the latest meeting indicate that the chances of reaching a final deal are now slimmer than ever after animosities between Riyadh and Teheran resurfaced. If that remains the case, then there is every possibility that oil prices will drop, possibly to the previous lows.
