It seems the prospect of oil price going beyond $60 a barrel will not happen this year and the next. It is so weak that a major incident must happen to wipe out more than five million crude production to have any impact on oil prices.
Many factors affect oil markets in terms of surplus availability from all over or almost every part of the world.
USA shale oil plus Canadian oil that some owners are selling at a loss must get rid of the current surplus blocking the future imports of OPEC countries Saudi Arabia and Iraq.
Canadian suppliers are discounting their crude by more than $15 a barrel to compete with USA oil price which stands at $55. Canadian oil is currently the cheapest in the market. This is in addition to OPEC members with potential spare capacity, as well as some other countries ignoring their quota and pushing for more exports.
Iraq and Nigeria are clear examples as they admitted their guilt and made promises to stop and join the group next month.
Moreover, Kazakhstan promised to once again reduce by 60,000 barrels from next year while producing more than 1.9 million today. As the market is awash with oil and upon learning that Iranian and Venezuelan oil could hit and reach market, the Iranian oil may come sooner once it touches base with America and if the US administration lifts oil embargo on Iran.
So, any efforts by OPEC Plus to stabilize and raise oil price to more than $60 a barrel is a very hard task and needs bigger production cuts — around more than two million barrels – to pave way for Iran and Venezuela with the growth and demand for crude oil not increasing to more than 1.1 million barrels which will be eaten by non- OPEC countries in no time.
On the other hand, the incidents this weekend at Saudi Aramco facilities in the eastern part of the country raises the alarm and concerns that could have destroyed oil facilities of the company resulting in damages to export facilities.
We hope it does not happen and that everything is in order. Any damage to the biggest exporter of oil and petroleum products in the world would change oil prices to reach more than $60 a barrel, depending on the extent of the damage. Generally, oil prices will remain weak in the next two years without any hope of recovery. Finding alternatives to oil is the answer, but such calls have fallen on deaf ears.
By Kamel Al-Harami Independent Oil Analyst