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The United States of America (USA), Europe and China, along with the oil countries, are currently facing different challenges. Every country has its own peculiar problem – increasing bank interest rates to address inflation, reducing income taxes for the same purpose, and stimulating demand for goods and services in China to achieve growth. On the other hand, oil producing countries are trying to protect their barrels from further decline – below $80 a barrel after peaking at above $147. Now, it seems OPEC+ is aiming for the $90 range.
Meanwhile, the International Monetary Fund (IMF) is not happy with the United Kingdom’s (UK) economic action to reduce taxes; making the value of Sterling Pounds go down against the US Dollar. This forced the UK government to sell anything to stabilize its currency, while inflation is hitting the 10 percent mark.
As if the current chaos is not enough, Russia, on the other hand, is using anything to cause all forms of disruptions to break the current global stand against its invasion of Ukraine – even the disruption of gas supply to Europe. It believes that the continent cannot survive without its gas, knowing that Europe will boycott Russian energy supply by the end of December 2022.
In the meantime, OPEC+ and its main partner Russia will hold a meeting within the coming days to decide on what to do with crude oil volumes – reduce or increase oil volume starting from November this year.
So far, all indications point to reduction of production by more than 500,000 barrels per day; in an effort to strengthen oil price to bring it back to $90 a barrel. This reduction could meet the price target, but the message should be stronger than increasing price and revenues. The message should call for consuming nations to invest in oil and encourage shareholders in oil companies to approve such move. Their policy is to simply curtail and minimize investments in exploration and leave it to oil producing countries to do more investing in fossil oil – a taboo for the current USA administration; although Europe, China and India are now back to coal and nuclear. Still, international oil companies are reluctant to invest and put more monies into exploration and to look for new oil sources.
The ball is now in the court of OPEC+; while it should bear part of the responsibilities of international oil companies, not to plough cash, profits and returns. Under such circumstances, the decision of OPEC+ to reduce crude oil production is justifiable. With oil price heading towards higher levels, consumers will be hurt and will blame the oil organization, nobody else.
The current global business environment is so confusing. It could lead to further chaos which will, in turn, lead to the opening of new opportunities.
By Kamel Al-Harami
Independent oil analyst