A barrel price of above $90 brings fear of inflation

This news has been read 2028 times!

OIL prices have reached their preferred level of $90, but we are hearing some noises that this level and above will cause inflation, which will in turn lead to stagnation and later to lower economic growth. Oil-producing countries are faced with the costs of investments in oil as well as new oils. While trying to prevent tightness and shortages of supply, OPEC+ is squarely blamed for not producing new oils. On the other hand, consumers put the blame on the oil organization for its continuous oil reductions and volunteer cuts of more than one million and more, with Russia volunteering between 300,000 and 500,000 barrels per day, making the oil supply a bit tight, despite the additional oil coming from USA, Canada, and Brazil.

This time we noticed total commitment from all OPEC+ members to the production cuts for one reason, which is to keep their annual budgets balanced; otherwise, they would have to go to the nearest banks to borrow for more cash, and would not face any mercy from the loaner. At the same time, things had started looking brighter for OPEC+ members since 2016 when Russia joined OPEC, as there was more discipline and precise sticking to their quota. The surprising element was when its new member fully adhered to its quota. The arrival of its biggest oil producer and for it to be so active and so disciplined with its clean strict quota had disappointed the members. OPEC+ today, since the arrival of Russia, has become more united and is leading towards stable oil prices. This will lead to a new era for the oil producers, ensuring the organization can recover its cost of production, along with balancing its annual expenses.

A balanced budget should be the new target to be adopted in the OPEC+ manifesto. Of course, there must be some sort of average level for ensuring a balanced budget, as for some members their breakeven is above $100 per barrel. The majority fall under $100, and the average is around $91 per barrel, which is bearable and manageable. OPEC+ should not complain, as the current barrel is within the OPEC+ range. While oil-consuming countries should accept such a level, they must also put pressure on non-OPEC+ oil producers to invest and explore new oils and new discoveries, instead of just blaming the oil organization for any future shortage.

There is definitely some spare capacity available at hand, but OPEC+ must also protect its interests and cover the cost of its expenses by providing the world with the required energy. Yes, there will be increases in almost every aspect of our lives, as oil is required in our lives, but bank interests also contribute to inflation. Oil will reach a level of $100 per barrel soon, but OPEC+ must be prepared to curtail its expenses in order to preserve and take full advantage of the higher price for it to last for one full year to bear the full benefits. Russia joining OPEC made a big difference and that will be fruitful all the way.

By Kamel Al-Harami
Independent Oil Analyst

Email: [email protected]

This news has been read 2028 times!