Tuesday , October 17 2017

Crude oil prices to remain low for long time to come – OPEC not responsible for weak prices

Kamal Al Harami
Kamal Al Harami

Regardless of the outcome of the OPEC meeting, the oil prices will remain low for a long time to come. However, there is no consensus concerning what cheap oil is and how it can be measured. Is it the lowest cost for producing one barrel of conventional oil, which is below $10, or is it the current oil price of $45? Or is it the lowest level that oil prices can fall in order for OPEC countries to meet their annual budget without experiencing any deficit, which ranges between $55 and $60 per barrel?

Is it the global oil surplus that is causing the oil prices to remain weak or is it the stagnant economic growth? Or is it simply because the oil organization decided to reduce its output by 2 million in order to increase the oil prices?

Reducing the oil output by 2 or 3 million barrels is not the real solution. OPEC seems to have started realizing this harsh fact but it needs world economy to overcome this low level of prices in order to stimulate commercial and economic movement.

Therefore, OPEC is not responsible for the low oil prices but the world economy is, as it is not picking up at a higher rate in order to spur demand for oil.

It is a forgone fact that OPEC will not reach any agreement to direct the oil prices when every producer is hitting its peak production. It seems Russia and Saudi Arabia have suddenly started competing fiercely with each other for the position of the world’s top oil producer; they are both targeting a production of 11 million barrels each and they are both short of approximately 300,000 barrels from reaching the target.

Both also claim to be capable of surviving with just $35 per barrel. So what is it that no one seems to understand – is it the market share, flexing of political muscles or competing for the top position? At the end, one will have to give way for sometime.

No decision is bound to be taken at the end of the OPEC meeting but it is clear that there is nothing that the oil producers can do to stop the decline or increase the oil prices even by decreasing the oil production, without any economic growth. There seems to be no solution despite the political tensions in the world particularly the Middle East.

For the time being, all oil producers should be happy with and grateful for the current oil price, which is around $45-$47, considering the huge surplus of oil globally.

Oil producing countries should utilize their resources more efficiently, as the peak oil prices of around $100 per barrel have long gone. Such a high level is not expected to return in the next five years. So let us enjoy what we have in hand now.

Email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

Check Also

Oil prices remain in the doldrums

Surveying the oil markets at the start of May, when prices were under pressure and …

Translate »