Between the recent unrest in the Middle East and the ongoing conflict between Russia and the West, you’d be justified in expecting prices of one of the chief exports of those two regions—oil—to start creeping upwards. But that’s not happening, in large part thanks to the market-soothing effects of new supplies of North American crude. As the Telegraph reports, oil prices actually just hit a nine month low:
The International Energy Agency (IEA) cut its forecast for the rise in global consumption to just 1m barrels a day (b/d) this year due to near recession conditions in Europe and as pervasive weakness in the world economy disappoints…This comes as supply rises by a further 300,000 b/d beyond what was already planned. The warning sent Brent crude prices tumbling to $104 a barrel, the lowest this year. […]The IEA said in its monthly report that the oil market seemed “eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world”…Yet so far the rise in supply has overwhelmed any actual disruptions from crisis zones.
With crude prices so low, countries are stockpiling up, wary of continued supply disruptions in the near future. These developments are bad news for Russia on two levels. First, with the developing world stockpiling at such a brisk pace, countries are less vulnerable to one of Moscow’s biggest geopolitical weapons: cutting off energy supplies.But the fact that oil prices aren’t soaring, despite turmoil in Iraq and Libya—in large part because of the supply boost from North America—must also worry the Kremlin, which the Telegraph notes “needs a price near $110 to balance its budget.” The shale boom is the American answer to Russia’s energy weapon, and it’s threatening the Russian economy.Frack, baby, frack.