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OPEC plus, what is your asking price?

Kamel Al-Harami

Further production cuts above the current volume of 1.7 million barrels will not be enough, especially in the absence of any price guidance. Considering what the OPEC Plus’ price range for crude oil is, deeper cuts will not help. Perhaps waiting until the end of the current month to witness how far oil price will go down, and the market reaction would be better. Oil price fell by $11 per barrel since the beginning of this year. Today it stands at $55 per barrel.

What does OPEC Plus have in mind as price indication? Does the impact of China cutting their consumption by three million necessitate the cuts, with their refining cuts of more than one million barrels a day? Or has the global demand been weakened by coronavirus, which is affecting our universe with no hint of any immediate cure in the near future? It is becoming a habit of OPEC, and now with its Russian friend, to cut production in search of higher oil price reaching $60 or higher. However, this level is hard to achieve now, while its main supporter has a different level in mind, and is totally happy with price of $50 a barrel.

Therefore, any further cuts will hurt its export, but most importantly, its market share and its customers. The Russian oil companies are reluctant to accept any cuts. Some of them seriously doubt Russia’s complete compliance with either the production cuts or the agreed quota. OPEC must be careful about its objective, especially since Russia does not share our objective on the price level and its economy is doing very well at any price above $45.

On the other hand, most of the OPEC members are suffering, as the minimum level required for Kuwait is $80 per barrel and for the rest $90 and above. Those levels are beyond reach in the coming months. OPEC Plus must wait before reaching the final figure of above 2.5 million barrels. OPEC will soon lose its market share and will not reach its objective with or without the “Plus”. Anyway, what is its objective for the time being?!

By Kamel Al-Harami
Independent Oil Analyst


email: naftikuwaiti@yahoo.com

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