The dependency of most Middle East nations including Iran and GCC countries on oil revenues is neither deniable nor avoidable. Many other oil producing countries such as Russia are also much relied on oil revenues for their economy to run. That is why the implementation of current and future trends of oil prices is crucial for all oil producing countries and as Iran is one of them, our analysis, vision and decisions are much affected by the way we perceive trends and how we react upon them.
There is a natural tendency in oil and commodity exporting nations and their think tanks to be over optimistic on prices. As an instance years ago when oil prices boomed to over $140 a barrel, many officials and experts complacently had suggested an oil price of $200 to be a coming new normal, before it collapsed to less than $40. The same pattern has been observable in recent trend starting two years ago in which oil prices lost more than half of their value.
After two years of a weak market and prices as low as 35 dollars a barrel at the bottom, currently we have been observing a slight improvement of the market condition from the beginning of 2016 with prices hovering around $50. The debate now is very uncertain whether we are returning to the normal 100 dollars a barrel or the current state is just a correction in the downward trend.
A look at fundamentals suggests that current upward movement has not a very strong momentum, and is subjected to unreliability. Although rig counts in North America declined by a great amount in the recent two years, the regeneration started from the beginning of 2016 along with a tentative oil price recovery, provides a hint of what could happen if prices continue to increase. All but most of rigs would restart their operation and the market would face another phase of oversupply and price decline.
Aside from rig counts in the west, OPEC members themselves are not about to be committed to their pledge of restraining production. Most oil exporting countries are facing severe fiscal pressures due to low oil prices and any expectation of long term commitment to constrain production is unrealistic, as previous indications of such decisions by OPEC members suggest. Aside from supply side uncertainties, the demand side is in an even more unpromising position.
Energy consumption in the world lacks the momentum it used to have years ago, as global sluggish economic grow along with substantial developments in green energies, has put a drag on oil consumption all around the world and even demand growth from China and India is losing steam.
There is no sign of any reliable recovery in demand side and any real commitment for production cut in the supply side which might imply a stable upward trend for oil prices. A short term increase to around $60 is presumable, but any further advance near $100 is far from materializing unless a major supply disruption happens or an extensive monetary policy shift from the Federal Reserve comes to sight e.g. instead of hiking rates, markets begin to expect rate cuts and massive QEs, which is still very unlikely but not to be discarded, otherwise, hovering around $50 per barrel with fluctuations between $40 to $60 seems to be the new normal in the oil market.