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Monday , December 16 2019

Oil market to be oversupplied in next 4 yrs

OPEC set to lose further market share

Kamel Al-Harami
Independent Oil Analyst

MORE bad news is emerging for the oil organization, as more oil has been pouring from different unconventional sources far away from the troubled waters.

This time it is not the USA shale oil but oil from Brazil, Canada, Guyana and Norway. All the four countries are expected to bring more than five million barrels of oil in the next four years.

OPEC will end up losing its global share of 35 million barrels to less than 29 million barrels or may be less. This is after the absence of Iran and Venezuela, which have been forced to cut down their production. Iraq at the same time has been pushing for 4.9 million barrels, and is currently close to 4.7 million barrels per day.

Oil price will remain weak for the coming years. Reducing oil productions further will not work in the future, and oil producing countries will have to live with an oil price less than $60 per barrel. This is the reality of the oil situation, and there are questions about for how long OPEC can cope with further reduction cuts and sacrifices while more expensive oil can survive and beat the cheaper oil producers with no more than $7 per barrel production cost.

The old/newcomers are reshaping their oil throughput such that Canada is almost completing its pipeline of 1,000 miles reaching USA and finding a comfortable market while competing with domestic USA crudes. Norway, after 19 years of oil decline, is beginning to shore up its oil fields by producing 470,000 barrels and i n c r e a s i n g the country’s output of current 1.3 million barrels to more than 1.9 million barrels by the end of 2021.

OPEC market shares will face pressure and must confront severe competition from non-OPEC producers. It must reduce its production further to allow room in the future for Iran and Venezuela to take or claim back their shares. Despite the fact that Russia is siding with OPEC now, its own oil companies are not happy and want to increase their production further, and remain independent from OPEC and its regulations. While shale oil producers are trying hard to remain competitive, some independent ones are losing their shares and almost declaring bankruptcy.

Others like the major international oil companies are pushing hard with their financial muscles to export more than 3.5 million barrels to the world. The picture doesn’t look so bright, and this could be the motive behind Saudi Aramco to sell its ownership in the market in order to move away from oil and create an alternative source of revenue.

Should Saudi Aramco IPO go ahead, for sure other national oil companies will follow suit to generate cash to meet their budget and financial deficits. Certainly, more cheap crude will be hitting the market and helping the demand to grow further, which means alternatives to oil must take break, and efforts towards global warming have to be delayed.

By Kamel Al-Harami Independent Oil Analyst
email: naftikuwaiti@yahoo. com

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