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Wednesday , February 19 2020

Oil prices below $50 per barrel – pure speculation – Supply high but demand still weak

Kamal Al-Harami
Kamal Al-Harami
Oil prices will not improve or go above $50 per barrel if the basic fundamentals remain the same. Supply is high but demand is weak. Nothing is likely to change in the near future especially when OPEC is continuing to pump extra barrels every day into the already-saturated markets. Financial houses have become the biggest beneficiaries with their daily gains due to the fluctuating state of the oil market. No difference is being made when there are no changes to the demand-supply rate.

The question remains concerning the motive behind OPEC’s continuous production from all its members or from those that are able to push and produce more oil. Is it happy with the current rate which is less than $50 per barrel with the aim of gaining extra income or for accessing and winning extra market share? Or is it aiming to keep the oil prices constantly below the magic figure of $50 in order to prevent shale oil and other expensive oils from emerging again in the oil market?

Considering the current miserable condition, where do we go from here? The likelihood of any success in the forthcoming unofficial meeting of OPEC in Algeria prior to the end of the next month seems minimal. Most certainly, no agreement will be reached as long as the oil prices remain at its current level and the demand for oil remains unchanged. The bases for any kind of success are missing with the overwhelming political disagreements and divided opinions without any kind of compromise, such that members with heart have no voice.

Russia of course welcomes any cuts as long as she is not part of it. She has never participated in any cuts in the past but will keep on attending the OPEC meetings as part of her PR campaign.

There will definitely be pressure on Saudi Arabia to either freeze or cut down production and allow others to continue increasing their production. If arguments persist, no agreement will be reached and the oil prices will hit another low again. This will allow the commodity speculators to take full advantage of OPEC’s failure again with pleasure.

There is no cure for the current situation of the oil market. The demand must increase before any improvements to the prices can be expected. Until then, the oil market is in the hands of the speculators and OPEC will end up being sidelined for now. Oil countries have to dig deep into their pockets or find alternative sources of income. An end to the low oil prices will require some more time.

email: naftikuwaiti@yahoo.com

 By Kamel Al-Harami

Independent Oil Analyst

 

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