The questions in the minds of every oil-producing and oilimporting consumer are – why this sudden decision to pour more oils into an already-saturated market? Why push more oils with no home?
Why increase production to above 12 million barrels to be kept in land storage or use oil tankers as floating storage at a cost of more than $ 190,000 per day?
What caused the sudden turn from the last OPEC meeting when the overall consensus of the need for oil production cuts and the disagreement was concerning reduction of 1.5 million barrels per day shared between OPEC and its “Plus” partner for a period of three months or for the remainder of this year?
Saudi Arabia has taken almost the full burden of the production cut, followed by Kuwait and the United Arab Emirates.
The meeting failed after Russia refused to extend the production cuts by more than three months.
Within three days of the OPEC failure, Saudi Arabia went on a fullblast production to go above and beyond its current capacity of 11.3 million barrels to achieve 12-13 million barrels of daily production by next year.
This is coupled with price discounts and reductions of $6-$10 per barrel depending on the destination of their crude oils. It has been hiring more than 19 very large crude oil carriers at more than $180,000 per chartering cost.
As a result, the oil prices collapsed, losing about 30 percent of its value, and trading within a low range of $30 a barrel. This has resulted in an absolute price, as the state income, of less than $30 a barrel and even lesser to reach $25 per barrel if the crude oil is sold to the USA market. In the end, the loss is for all oil-producing countries, leading to higher budget deficit that run into additional billions of dollars.
Now that the damage is done, we wonder how soon the oil price will recover or stabilize. Is it going to last for few more years?
Perhaps by that time, all the financial reserve, internally and externally, will end, with one exception – Russia.
By Kamel Al-Harami Independent Oil Analyst