Guaranteed investments! That’s what OPEC is saying. This oil organization is stating that it protected the oil investments of its competitors to grow in volume, make profits and increase market share. OPEC also protected their exploration activities in hard and difficult fields at its own expense for the last ten years. This oil organization has been their guardian and safeguard for a long time.
All financial houses and institutions were ready to loan and support any oil investment projects, knowing ahead in time that the oil prices will remain strong and will grow as long as OPEC is leading and managing the oil supply. They knew well that OPEC was going to aim for higher price level at every meeting. This oil organization represented one voice of one concern and no one was able to dethrone it. No one doubted the oil prices will lose stability, as the business was risk-free with OPEC in charge.
Oil prices hit $125 per barrel and more because of the organization’s discipline. The expensive oil producers including shale, deep sea and sand oil producers, took advantage of the situation, growing along with the increase in the oil price levels.
Suddenly, OPEC stopped its role. There was no more production quota, fixed direction or acceptable level, due to which the oil prices fell below $50 per barrel in less than a year from the day when OPEC took its historic decision in November 2014.
Since then, oil investment projects fell by more than $22 billion. No one was prepared to support any oil investments without returns at less than $40 per barrel. This is a very low figure, which could only be found in the Arabian Gulf countries such as Saudi Arabia, Iraq, Iran, etc where major international oil companies will be investing in the future.
Consequently, the oil market became free. OPEC relinquished its role and will no longer defend its competitors who have to prove their case and return on their investments at the lowest oil price level.
OPEC is now looking at the long-term vision and that of the next 2-3 years while keeping oil at low level in order to force expensive oil producers to quit the market or try to bring up the oil prices. It is their turn to pay back their profits to OPEC or ensure the demand rate picks up and for expensive oil producers to be the swing producers.
OPEC will continue to grow and increase its oil production at low price levels. The market is open to those who can compete with the organization. International banks are no longer able to support the expensive oil producers, as there are no guarantors available to direct the future oil prices.
By Kamel Al-Harami
Independent Oil Analyst