------------- -------------- ------------------- -------------------

National oil companies on borrowing spree

‘Time is ripe to move away from oil’

KNOWING well that the current oil prices within the range of $55 per barrel is not sustainable, the national oil companies are on a borrowing spree. Companies like Saudi Aramco, Kuwait’s KPC, Iraq, Pemex of Mexico, Petrobras of Brazil, PDVS of Venezuela and the rest are suffering from low oil prices and their governments are no longer able to meet the needs of the state companies as well as in financing and meeting upstream and downstream requirements in search of and for developing new oil wells, and for more volumes.

Kamel Al-Harami Independent Oil Analyst

This is in addition to building new refineries and upgrading existing ones, and meeting the increased local demands or obtaining added values from finished products. The funds needed are in billions of US Dollars, and the companies have to borrow from financial institutions and markets to secure the necessary funds.

The question however is – at what rate will banks and financial institutions value the underground oil for now and the coming five years.

Most of the national companies are using billions of barrels as collateral to secure funds. This is at a time when the demand for oil is weakening and is not promising. Currently oil is valued between $15- $20 per barrel by international banks. However, will it remain at such a level especially since the demand for more funds is escalating and demand for oil to be consumed is reducing annually.

Oil against borrowing seems unsustainable in the near future with the weakening value of the barrel to not more than $60 a barrel. National oil companies are short of cash, and faced with problems of finding cash to pay the salaries of government employees, Borrowing to fund investments in oil should not be a priority; but again, without the funds, it will not be there. With more borrowing, we know the cost of producing oil will increase for the Arabian Gulf producers to be uncompetitive.

This is because we are in need of more than $90 a barrel to balance our economy. So, oil producing countries are facing combined nightmares in terms of actual market oil price, increased cost of production including borrowing cost, increase in annual expenditures and meeting the local demands for jobs.

Therefore, we must invest in the hope of increased oil prices for covering all our expenses while borrowing money from the open market. Weakening of oil prices will end in closing the doors for borrowing, but when, considering the financial burdens on national oil companies are doubling? The time has come to move out of oil.

By Kamel Al-Harami Independent Oil Analyst

Email: naftikuwaiti@yahoo.com

Check Also

Kuwait’s oil minister inspects work at KPC’s firms

Al-Fares says visits aim to review plans and strategies in oil & gas industry KUWAIT …





You have installed adblocker kindly disable
or

whitelist www.arabtimesonline.com



 

 

 

Translate »