In the oil world, geopolitical risks seem to have taken a backseat - at least for now - and the focus is shifting to the growing crude oil surplus. Crude oil prices have slithered to a multi-year low.
In 2014 so far, West Texas Intermediate (WTI) is around four percent down, whereas Brent crude oil has slipped by 12 percent in the same period.
It is as if $100 per barrel is some psychological threshold for crude oil prices; Brent crude oil, which is an expensive blend, has remained below $100 level in almost the entire September 2014.
Interestingly, a blend of both supply and demand issues has clamped down crude oil prices. Prices have flouted the trend that one would expect with the continuing unrest in Middle East, Europe and Africa. There are two main reasons for it.
One, markets are well supplied; even though OPEC has witnessed substantial disruption, US shale oil production has propped global oil supply with pressure on WTI mix. Return of production from Libya has been added to the global oil stream, keeping a lid on Brent mix.
The second factor for restricting crude prices is the weakening demand for oil. Weaker economic growth in Europe and Asia has hit the global demand for crude oil. China, the largest consumer of crude oil, that is grappling with the Hong Kong demonstrations, is not doing particularly well on the economics front.
Though crude oil prices are volatile to predict, the current situation can be extrapolated to continuing supply glut, strengthening dollar (since crude oil is priced in US dollars), and muted global demand in the near future. The role of geopolitics as a wild card has also remained minimal as it can be seen that unrests in various parts of the world have been futile in pushing oil prices up.
What impact will this spiraling down of oil prices have in Pakistan? While the direct and indirect consumers of oil will be relieved of the respite in costs, oil and gas exploration and production companies would be not be too happy with softer crude oil prices.