Wednesday , October 17 2018

Crude oil in need of miracle – OPEC unable to stem decline

OIL market is in need of a miracle … or is it better to say OPEC is in need of a miracle of increased oil prices before they dive below $40 per barrel?

It seems the oil organization is unable to stop the decline. No further action can be taken before the end of the year. Despite OPEC’s recent decision to further extend the production cuts until the end of the first quarter of next year, it had a negative impact on the oil prices which were at a high range of $53-$55 per barrel.

The oil stock is high, higher than what it was when the oil organization had started its production cuts and supplies. At the same time, the shale oil production increased by more than 570,000 barrels.

OPEC needs to put its house in order and make sure all of its members adhere to the agreed production cuts. This is necessary as just three or four members are fully compliant while the rest are over producing. We know that Nigeria and Libya are exempted but what about the rest? Why should just Kuwait, Saudi Arabia and Qatar reduce their oil production while the rest behave as though the oil situation is under control?

Oil prices will keep on declining unless the shale oil producers reduce production when they run out of money after they fail to recover the production costs.

With the decrease in oil prices, we might witness further declarations of bankruptcy as seen in the past. Major oil companies such as ExxonMobil and Chevron are still operating on shale oil fields but the results will be seen later in their balance sheet by the end of the year.

Nothing is left for OPEC to do except urge its members to stick to the production cuts and agree to further crude oil reductions. Prices will be going down as long as the oil surplus prevails and the US shale oil production is on the rise. Currently, none of the two appear to be easing, so what can OPEC do now besides waiting for some miracle to happen.


By Kamel Al-Harami

Independent Oil Analyst



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