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Low prices hit oil companies’ earnings during third quarter – Trend expected to continue next year 

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Kamal Al Harami
Kamal Al Harami

All international oil companies are expected to announce low earnings for the third quarter of this year. BP, Shell and Total companies have already announced their results. The earnings of BP have reduced by 40 percent as a result of the oil prices, which have been at the lowest since 2009.

This trend is expected to continue next year without any revival of oil prices, which are stubbornly refusing to increase above $49 per barrel. There are indications in the market that the oil prices will continue to be weak owing to weak demand for oil and the threat of Iranian oil coming into the market next year.

This situation can change only if the supply exceeds demand in the near future and the Iranian oil does not enter the market. Oil companies have to do more than the normal cost-cutting, reduction of manpower by 10-15 percent, cutting on their capital and selling their poorly performing units.

The bigger task would be to look into acquiring companies that are unable to survive under low oil prices and have low market value. It is an opportune time to buy such companies, break and reorganize them, and sell them later to those looking for small units and not the whole package. In this way, all will make money but those with strong cash can survive the longest.

In addition to all this bad news concerning the oil industry, another bad news is that the USA administration is planning to sell part of its strategic oil reserve of about 100 million barrels from 2018 to 2025. This will negatively impact the future oil prices due to which oil companies will be forced to base their internal oil price at a value less than $45 per barrel in any future acquisition. This year is nearing completion.

It is a year when no one expected the oil prices to sink so low. Today we stand to say that next year will be another bad one for the oil prices, but we should not be that pessimistic. A meeting is coming up between the heads of the governments of Saudi Arabia and Russia. Should we expect some good news?! Perhaps we can keep an open mind in that regard.

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email: naftikuwaiti@yahoo.com

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