Global oil prices dip again, but not for long – Tensions not helping in market recovery
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| With the current rate of $32 per barrel, the oil price is the lowest since 2004. For how long will this remain? Prior to the recent conflict between Saudi Arabia and Iran, the oil price per barrel was on the verge of reaching $40 level. Some sort of coordination was to take place particularly with the Iranian side for curbing their aggressive style of dumping global markets with oil at any cost. Today, their oil minister is saying, “Iran is trying to avoid the price war”, indicating that it will market its oil in an organized manner without disrupting the weak oil market. |
Iran’s line of thinking is to invest in overseas refineries to avoid selling its crude oil in the open market. It is following the examples of Kuwait and Saudi Arabia in buying or building refineries outside their own countries and securing long term outlets without disturbing or exposing the oil volume to the open market.
Saudi Arabia and Iran were seen working on some sort of coordination for bringing stability to the market. On the other hand, Russia, at several occasions, hinted at cutting down their production from its peak production rate of 10.7 million barrels in the coming winter months. Now everything is up in the air except for Russia to reduce its production, which may take away some pressure from the overwhelmingly full market.
Therefore, oil prices are bound to rise again, as everyone is suffering and cannot afford to lose more under such low level of oil prices. The only oil producers that can manage and cover their operational expenses are the Arabian Gulf producers while the rest are in the red. However, none of the Arab producers are able to cover their overall annual budgets and have to borrow or pull out from their financial reserves. This is why the oil prices have to be revived, maybe at a slow rate.
The recovery should happen soon prior to the end of March this year; otherwise the oil prices may dip further, which however is unlikely considering the demand for oil during spring season.
The road to recovery is long this time unlike the previous years as the economic recovery of China or progress of Indian economy is not likely to occur in the near future while a partner is lacking for the recovery of USA to speed up its global trading, which may in turn affect the global recovery.
Oil price of less than $30 per barrel is too low for every consumer. This time, the political incidents are not helping in the strengthening of the oil prices. In fact, they are actually causing it to fall, which is unprecedented.
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By Kamel Al-Harami
Independent Oil Analyst
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