Debating oil price stability: Sustainable or temporary?

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The oil barrel price has finally reached the level that oil-producing nations have been anticipating. However, the question remains – Is this level sustainable, and how long will it last? Undoubtedly, the current complex political situation is a contributing factor to reaching this level. Additionally, the OPEC+ group’s steadfast grip on production, coupled with Russia’s pledge to honor its commitment to reduce production by 900,000 barrels per day by the end of next month, has played a significant role. This commitment may already be in effect, given the damage inflicted on its three refineries due to recent attacks by Ukraine. The current situation in the Red Sea and the regular ship attacks have escalated tensions in the area, effectively transforming the Red Sea into a war zone. The

re are no indications of the crisis abating, and this challenge of such a level is expected to persist for some time, particularly with the upcoming U.S. elections in November. It remains to be seen if the U.S. administration, under pressure from the elections, will urge OPEC+ to loosen their supply restrictions to ease the supply situation. Alternatively, the surge in oil prices beyond $91 could be attributed to genuine growth in demand. However, these prices have since receded with the closure of U.S. markets. While the USA administration keeps changing its mind about refilling its strategic reserve due to concerns about further oil price increases, they have to do so some time in the future, making the oil market anticipate such a move. This expectation is helping in maintaining oil prices within the range of $90, a level that may not be favorable for USA voters and could lead to frustration with the current administration as the election approaches. Credit must be given to OPEC+ for its determination to remain firm on its production obligations, and for the unity of its members in adhering to their quotas without fail. All members, including Iraq, are now coming forward to reduce production. Non-member Russia is also committing itself to significant reductions, a move long overdue. Cu

rrently, OPEC+ should be happy with its success in maintaining its discipline to reduce its production. However, a looming challenge is how long it can tolerate other oil-producing nations effortlessly capturing its crude oil market share. Countries like the USA, Canada, Brazil, and Guyana are competing without hindrance. For instance, US crude oil is now flowing to India, potentially jeopardizing the long-term supply from the OPEC countries in the Arabian Gulf region and Russia. This perhaps may be acceptable today, but for the long term, proactive measures must be taken such as reducing oil prices to deter the advancement of other oil producers with higher costs of crude oil!

By Kamel Al-Harami

Independent Oil Analyst
Email: [email protected]

This news has been read 1129 times!