Wednesday , February 20 2019

As prices hit rock-bottom, time for producers to talk – Oil may reach $40 on output cuts

Kamal Al Harami
Kamal Al Harami
Every oil producer is hurt without exception, as the oil prices have hit rock-bottom. It is time to discuss about allotting at least the lowest price of oil. If the two biggest global producers cannot lead and manage their biggest source of income, then why bother to brag about it publicly?

Oil prices just picked up to hit $30 per barrel after all OPEC and non-OPEC oil producers started talking openly about joint crude oil production. The one and only solution for OPEC and non-OPEC producers is to agree on certain cuts in production.

Now that the oil producers have reached some kind of understanding after several months of suffering and loss of income on a daily basis, time has finally come for them to sit down and talk about reaching some kind of compromise regarding the level of production cuts particularly by the two big players – Russia which produces about 11.1 million barrels per day and Saudi Arabia which produces 10.5 million barrels daily.

Oil prices will definitely rise but we have to be careful to ensure it doesn’t reach a level that will revive the shale oil. This is a new nightmare that is scaring all conventional oil producers and represents a new challenge for them. It is cheap to produce shale oil and ensure good return on investments within a short period maybe even less than one year unlike the conventional oil which takes five years or more.

Oil prices may hit $40 and above per barrel as soon as OPEC and Russia agree on certain production cuts, bearing in mind that any further improvement in oil prices will not benefit the traditional oil producers. In fact, oil prices should stay at $60 per barrel until world economy starts improving particularly the economies of China and India followed by that of Europe later.

When the demand for oil is weak, the oil prices will remain weak. Last week’s improvements were positive especially the surprise that the two biggest producers seem willing to talk about reducing production levels. Let us hope they will continue their positive talks because everyone in the oil field is hurting now. It is time for adjustments and perhaps more money.

Email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

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