No One Can Determine the Oil Price

While the OPEC Secretary General and Saudi Arabia have stated that the price of 100 dollars for oil is appropriate, Iran’s Oil Minister has said that any price less than 100 dollars is unacceptable. Iran’s representative in the OPEC Board of Governors has talked about 110 dollars per barrel. Is there a difference of opinion among the members of OPEC?

The price of oil, like any other good, depends on the world supply and demand. At the time when there is economic recession in the industrial countries of the world, the demand for oil is reduced. Under these circumstances, OPEC and oil producers should either reduce their production or be faced with the reduction of the oil price. On the other hand, if there is no economic recession in the world and the global economy is dynamic, maintaining the present OPEC production could lead to an increase in the oil price in the world markets. Therefore, the price of oil is not determined by any single individual.

But we have recently witnessed a decrease in the oil price and it has reached its lowest amount in the past nine months. What is the reason behind this decrease?

This reduction is related to the issues and crises which exist in the world economy, particularly in the US and Europe, leading to a reduction in demand. The OPEC report in March shows that the average demand for OPEC crude oil in 2013 has been estimated to be 29,700,000 barrels per day which, compared with 2012, has been reduced by 400,000 barrels and by 100,000 barrels compared with February.

 Furthermore, it must be noted that this reduction is also related to global stock markets like those in New York, London etc. With their games, these markets lead to the increase and decrease of the prices of oil and gold, but these are temporary and the price of oil is generally dependent on supply and demand.

Seeing that the Oil Minister has talked about the unacceptability of a price less than 100 dollars, has there been any development at the international level which could seriously affect the price of oil and reduce it?

I believe that we are not under conditions that would create major developments in the price of oil, so much so that the price of oil would reach less than 90 dollars or more than 120 dollars. In my opinion, nothing is certain in politics, especially in international politics. Right now, there is the crisis in North Korea; or the issues related to Iran’s sanctions are proposed; or Saudi Arabia and Iraq intend to increase their production; or the crisis in Syria could become worse. Any one of these issues has its own weight and can somehow impact the oil market.

These crises that you mentioned show the insecurity in the world. Therefore, shouldn’t we expect a serious reduction in the oil price?

Yes, if we put the crises on one side and global economic recession and the resolution of international crises on the other side, then any development on either side would lead to a change in the price of oil. Nevertheless, no one can predict the exact price of oil. But there are trends that can affect the supply and demand of oil. For example, the progress made in today’s technology has made the utilization of certain sources, which was previously impossible, possible. Thus, it is predicted that, in the future, the oil supply will increase. Based on these technological advances, it is predicted that the US, within the next few years, i.e. until 2020, would not need to import oil, hence, such an issue could seriously change the supply and demand of oil.

What can OPEC do in this regard?

OPEC is not a determining factor in the price of oil; particularly that OPEC, during recent years, has been faced with internal differences. What OPEC should do is to make effective decisions by moving past these differences. This means that if it decides to increase or reduce production, all of its members should be committed to this decision.