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Saturday , November 16 2019

Deeper production cuts not the solution – ‘Oil is no longer the answer’

Some Organization of Petroleum Exporting Countries (OPEC) members are suggesting further oil reduction in the hope of bringing oil price to the $60 level.

This is unlikely to happen for two reasons – because there is huge surplus of oil in the market and the OPEC members will not fully adhere to any cuts and we are aware of at least two OPEC members who have said so openly. Still OPEC and the markets are waiting for the decrease in the promised throughput.

We know not that some OPEC members and OPEC+ will fully adhere to cuts and implement the resolution. Secondly, any reductions will be filled by other oil producers globally and the USA shale oil which is waiting on the sidelines to fill any shortage and penetrate the new markets globally. Further, cuts are not the solution because most OPEC members enjoy the lowest production cost of below $10 a barrel. But now they just can’t compete with and their economies can’t survive any price below $70 a barrel.

While the 3 biggest oil producing countries are in a fight to be the biggest producers of oil with the intention to hit the 12 million any time soon, there are no signs of any time recovery for the oil price to even hit the range of $60-65.

The surrounding uncertainty is not helping the oil, and it is more likely to hit the $40 a barrel may be by next year and then what? Do we seek further and deeper reductions, with no viable option and solution in sight? Do we, as oil producing country run away from our sole source of income and where do we go from here, and how do we finance our future projects, our growth, and creating jobs for the coming generations.

Here we address all OPEC members that oil is the main financier and without which they had to borrow and enter the market with higher financing costs than before.

The solutions are limited, either borrowing or selling their oil core business on the open stock markets. Both, however, have limited time and span with growth of populations and demand of the youth hungry population copying the beautiful West and China seeking to take over to become the strongest.

For our young population, this is a tough challenge with lower oil prices and without finding alternative source of income. Deeper cuts of crude oil production are not the answer. Oil is no longer the solution.

Kamel Al-Harami Independent Oil Analyst

By Kamel Al-Harami Independent oil analyst
email: naftikuwait@yahoo.com

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