‘Imbalance in the fundamentals of market puts pressure on oil price’
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Very difficult to make assumptions: Al-Shatti
KUWAIT CITY, March 19: Oil expert and analyst Mohammed Al-Shatti said it is very difficult to make assumptions as the oil price war will continue for a long time; because it negatively affects all countries and the American shale oil has started to suffer as companies announce bankruptcy, while the production and expectations of the industry in general are affected, reports Al-Rai daily.
In his statement to the daily, Al-Shatti pointed out the imbalance in the fundamentals of the market puts pressure on oil price that dropped to $25 per barrel – a price level which the market has not seen since February 2016.
He explained this price level did not compensate for the lack of revenue with the increase in production in 2016 when the US president announced the possibility of his country’s economy going into recession. He expects shale oil companies to reduce their budgets by about 25 percent, considering many of them failed to maintain cash flows. He said this indicates that spending in the exploration, drilling and production sector will decrease by 40 percent before the year ends.
He also expects the price of Brent to drop to $25 in the second quarter of this year, then rise to $35 in the third quarter and $40 in the fourth quarter. “Assuming the price will increase to $45 means an average price of $36 for fiscal 2020-2021. I do not think the budget of any oil producing country adopted this figure, as most oil countries have adopted much higher prices,” he added.
He pointed out the decline in the number of American drilling rigs by 20 to 25 percent within three to four months, in addition to the fact that drilling operations will be for less expensive wells in light of the current closure and production cuts.
On the disposal of oil, he said there are two outlets: first is refining to exit with petroleum products sold to final consumers, and second is crude oil to build commercial and strategic stocks. He added that due to losses incurred, refineries intend to reduce the number of employees as manifested in the low consumption of gasoline in America – the world’s largest gasoline consumer. He explained the transportation sector constitute 60 percent of the total demand for oil, while air transport constitutes approximately 10 percent.
He stressed that with this current atmosphere, low prices will not increase demand; let alone the impact of coronavirus and procedures which affect all aspects of transportation and productivity. He added this entails that continuous price cuts will not stimulate demand. “Many countries will have to reconsider their budgets. They will return to rational policies and strategic goals to accelerate diversification of the economy. Some oil countries are candidates for large budget deficits like Iraq, Nigeria, Ecuador, Angola, Algeria and Oman. The situation is made worse by weak gas markets,” he concluded
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