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In the US market on Monday, crude oil Brent oil fell below the USD/barrel mark in the short term, with the lowest touching USD/barrel. Although there are many potential downside risks in the crude oil market, there are still two important upside potentials that can provide some support for oil prices, namely insufficient investment in upstream mining and geopolitical risks.
Insufficient investment in upstream mining
Since 2009, due to the continued downturn in oil prices, many crude oil companies have significantly reduced related mining investments in order to cut expenses. It is reported that the scale of global crude oil mining investment has dropped to 2019. At the lowest level, production and maintenance expenditures in mature oil fields have also been significantly reduced, which will affect future production recovery. Once an unexpected situation occurs in the market, it will be difficult for supply to recover quickly, and there may be a supply shortage, which may lead to a huge rise in international oil prices.
Geopolitical Risks
Multiple geopolitical risk events, including the war in Yemen, will become important factors in the short- and medium-term rebound of oil prices.
First of all, Yemen itself is an important transportation hub for crude oil trade. About 10,000 barrels/day of crude oil transportation needs to be completed through Yemeni waters. As the war situation worsens, in the worst case scenario, local crude oil transportation may be completely interrupted, which will disrupt the original transportation route and force traders to take detours. The increase in related costs will inevitably significantly increase crude oil transaction prices.
Secondly, behind the war in Yemen is actually the struggle between Saudi Arabia and Iran. If the war in Yemen cannot be properly resolved, the escalation of the struggle between Saudi Arabia and Iran will inevitably lead to intensification of internal conflicts, which will directly affect the trend of crude oil production. Crude oil production accounts for about one-third of global production and has a decisive influence on international oil prices.
Many other demand-region political risks are closely related to the Middle East. These events will directly affect the crude oil production in the Middle East, thereby further affecting international oil prices.
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