Wednesday , October 17 2018

Oil on right track with the current price level – Prices to remain stable at $50/barrel

Oil prices are starting to settle at the $50 level and perhaps moving towards $55 per barrel by the end of this year. For this, OPEC of course has to stick to its commitment related to production cuts and Saudi Arabia must take a sole decision to cut exports close to 7 million barrels from this month. Also, local consumption is set to reach record figures with Muslim pilgrims traveling to Saudi Arabia from this month until mid-September.

In the meantime, the overall oil-related political situation is on the verge of causing some concerns especially with the decision of USA to halt import of oil from Venezuela, which is about one million barrels per day. This will lead to some logistical supply of the heavy oils. This means markets have to be switched from USA to Asia, while Middle Eastern countries must work on pushing more heavy crude oils to USA. This will cause additional expenses for both USA and Venezuela, but they will from the consumers’ pockets.

Oil prices can be made firmer, provided OPEC and Russia stick to their commitment for reduced production cuts.

However, for how long OPEC can sustain its greed and stop the situation from going out of hand with just small increase in the price of the barrel?

While OPEC is looking for slight increases in the oil prices for going back to the usual habits of cheating, international oil companies are adapting themselves to the low oil prices. Their second quarter financial results of earnings that have doubled indicate that they can perform when the prices are weak. Meanwhile, all OPEC countries are still at loss about how to manage their incomes as oil is still their sole source of income. They are waiting for any kind of miracle to help them deal with their current deficits.

Oil prices should remain stable at $50 a barrel. However, it will not be of much help, as the balancing price should be in the $60 level.

By Kamel Al-Harami

Independent Oil Analyst



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