Opinion: Oil Prices Will Continue to Rise, and Here's Why

Published October 16th, 2018 - 06:37 GMT
Prices jumped so fast that the $85 barrier was broken, with expectations that it would reach $90. (Shutterstock)
Prices jumped so fast that the $85 barrier was broken, with expectations that it would reach $90. (Shutterstock)

Many expected oil prices to tumble after US President Donald Trump tweeted his displeasure at rising prices. He threatened OPEC countries and said that they should cut prices, repeating this in two speeches. But that did not happen. In fact, prices jumped so fast that the $85 barrier was broken, with expectations that it would reach $90.

What is happening is that America has become self-sufficient in oil, both conventional and oil shale, and has turned into an oil exporter. As a result, the share of US imports from OPEC countries has become marginal, and the higher price of oil has increased the income of giant US oil companies. This then has resulted in an increase in tax revenue for the US Treasury.

Furthermore, Trump’s statements are consistent with the populist rhetoric of next month’s Congressional elections in the United States. Moreover, America’s oil policy has changed. Today, the US is primarily interested in making sure that oil revenue is used for development rather than spent on suspicious political expansion programs in support of terrorist acts.

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The United States instituted this policy against Iran, Iraq and Libya, and then extended it to include Russia and Venezuela. All these countries have at times used their oil revenue in a manner that threatened national security and civil peace.

Another equally important goal of the US national security system is to maintain a high oil price and to disrupt quotas for Iran, Venezuela, Iraq and Libya, thereby reducing the market potential for America’s most important economic competitor, China, to secure oil at a low cost.

This explains China’s intensive entry into Iran, Venezuela and other countries in an attempt to gain access to possible oil sources that are not controlled by America.

US policy and its relationship with oil have changed completely, as well as the economics of the commodity. Evidence of this is the continued rise of the dollar against other currencies, and the rise of the US stock market, which traditionally used to decline with any significant rise of the price of oil.

The US president’s statement on oil prices is purely for the consumption of the American electorate. The role of oil as a commodity is changing and the international community will not allow oil revenue to destabilize the world.

The price of oil will continue to rise, as bullish factors are stronger than the apparent supply and demand of the commodity. Winter is around the corner and prices naturally rise sharply with the change of seasons.

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