Current price of $75 per barrel not enough

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OPEC plans further reductions, forecasting future oil demand

IT seems OPEC is planning further crude oil production cuts to correct oil prices, as it is not within the organization’s targets. The current level of $75 a barrel is not enough to meet OPEC’s budget requirements. It is also not enough to cover its investment costs for sending more fresh barrels into the market. It is the lowest level since 2021. This is despite the fact that OPEC produced less volume by about 200,000 barrels of oil, mainly from Nigeria and Iraq; Nigeria due to technical problems and Iraq mainly due to legal issues between Baghdad, the North and Turkey. However despite such reductions, OPEC produced 28,600 million barrels per day less than the agreed volume last month.

The oil price remained weak, causing OPEC to act with more reductions. Further cuts are expected in the coming months in line with supply and demand rate for the coming months. Banking concerns, with the infl ation and lower economic activities, cause the oil price to remain weak, with OPEC’s concerns about the unannounced target price, which is below its expectations. As if this is not enough, the fi- nancial results of the first quarter for OPEC were poor when compared to the same quarter last year, causing lower income for oil producing countries to meet its commitments towards mega projects and catch up with their development’s plans.

In Saudi Aramco, the drop in earnings in the first quarter was about 19 percent, as compared to the same period last year, earning $31.9 billion against $39.5 billion. It maintained dividends to its shareholders of $19.5, which is the same as last year. This is a strong message that the company is working towards achieving its target and long-term plans. Here is the main reason for adjusting the supply to meet the current low demand for oil. Most oil producing countries, if not all, are faced with the same results of lower income and earnings due to lower oil prices and drop in oil production.

This forces them to take action to bring prices to a comfortable level by reducing the throughput. Lower oil production to balance the current oil demand will also help other oil companies like shale producers as well international oil companies, who have been minimizing their investments in fossil oil, imposing on OPEC to invest and spend while they benefit from OPEC’s efforts and sacrifices in the end.

Nevertheless, this is happening despite OPEC’s efforts to stabilize oil markets by providing continuous and adequate supply and avoiding any shortages. The organization will be met with criticism, as not to reduce supply and not interfere; regardless of how low the oil price will fall. The question, however, remains as to who will pay for OPEC’s cost in investing and exploring for new barrels.

By Kamel Al-Harami
Independent Oil Analyst
email: [email protected]

This news has been read 13502 times!

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