Wednesday , December 19 2018

OPEC only choice; the limit is reached

Kamel Al-Harami

To bring the oil prices down to an acceptable “White House” level, which is less than $80 per barrel, the USA administration must ensure all oil-producing countries including OPEC member states continue to maintain the current input.

This is prov i d e d Venezuela, Libya, Angola and Nigeria are troublefree with no further cuts, reductions, and labor boycotts. USA must also guarantee that no further hurricanes will hit the American Gulf coast and no disruptions to oil facilities or stoppage will occur.

Only then will the oil prices remain stable but within the $73-75 range. Many unknown factors in the energy markets that keep the oil prices down will have a target that is very hard to achieve in the absence of any additional spare capacity globally. With the exclusion of Iranian oil from the beginning of November, markets will be short of about 2 million barrels. This, we assume, will be convered by increased inputs from Saudi Arabia, Kuwait and Emirates.

The combined increase should be maximum two million barrels, equaling Iran’s input, which means stretching the global spare oil capacity to its limits. The main reason for the lack of spare capacity is that the USA shale oil had diverted international oil companies into investing in the USA domestic oil discovery, leaving other more expensive areas untouched, fearing shareholders’ demand on annual dividends leavening, and minimum global investments that led to today’s limited spare capacity and in the Arabian Gulf. Another reason for the problem is USA imposing boycott on Iranian oil. The recent drop in oil prices from its high of $70s was mainly due to resumption of Libyan oil production.

However, for how long will it remain sustainable? Oil markets will remain in turmoil without a comfortable cushion of ample spare capacity. Such being the situation, the oil prices will not be to the liking of the current USA administration, despite OPEC’s efforts. OPEC is limited by its capacity and needs a helping hand from the accuser.

By Kamel Al-Harami Independent Oil Analyst

Email: naftikuwaiti@yahoo. com

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