Cheap oil cost but of no value – Time for OPEC to find another source of income

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There is no need to brag that the cost of Arabian Gulf crude oil is $10 per barrel, or that Saudi Aramco’s cost of production is $4 per barrel. It is not a big deal as low-cost oil is not helping our financial situation.

What is the point of the cost being less than $10 when our annual budget requires the oil price to be more than $80 per barrel in order to be balanced? Any level below $80 will cause Arabian Gulf countries to borrow from outside or dig from its own financial reserve. We should realize that it is near impossible to get the oil price to rise above $70 when the current American administration is in charge.

The US has met its objective of becoming selfsufficient and does not need to import any foreign oil. Also, the cost of its oil is more than six times the cost of OPEC oil. US is now the top oil producer in the world and is no longer dependent on the import of oil. After the oil embargo in 1973, the US decided to avoid being exposed to any energy threats and realized its need to become independent. Now after 46 years, it has accomplished its long-term target, thanks to shale oil revolution since 2009 and the increase of its production to more than 1.5 million per day, reaching 12.3 million by the middle of last month. It is making history and will reach 20 million within the next ten years.

This follows the phase when the US thought it was “addicted” to OPEC oils. Since 1965, we in Kuwait have been calling for an alternative source of income besides oil as we are getting more and more dependent on oil. We are currently more than 90 percent dependent on our cheap oil, and are faced with increase in our annual deficit, which will reach KD 8 billion by the end of March 2020. Meanwhile, the search for an alternative source of income is somewhere in the air.

The same applies to Saudi Aramco, which is producing oil at a cost of $4 per barrel. The country needs the oil price to be close to $90 per barrel in order to achieve breakeven budget. However, OPEC is unable to compete with America’s expensive shale oil, which costs between $45 and $50.

At the same time, the American president is calling for increase in the oil production in order to reduce the oil prices to less than the current rate of $67 per barrel. Hence, OPEC is faced with two challenges – it has the cheapest oil on the planet and is unable to compete with American oil, and it is unable to improve the oil prices to balance its annual fiscal budgets. Perhaps, it is time for OPEC to find another source of income, as oil can no longer meet its financial needs.

By Kamel Al-Harami Independent Oil Analyst
email: [email protected]

This news has been read 12691 times!