Bid to accelerate exploratory efforts
KUWAIT CITY, Feb 26: Oil expert and consultant Dr Abdul-Sameei Behbehani says Kuwait has the right to and can demand exemption from the reduction of oil production share in the OPEC-Plus agreement, after the resumption of oil production at the divided region, reports Al-Nahar daily.
He stressed that reducing the oil production helps the country accelerate its exploratory efforts and development plans without losing its customers in the Asian and other markets. Dr Behbehani predicted that Kuwait’s production will decrease, following implementation of the new decision, to reach 2.62 million barrels per day, indicating that the increase in the price of a barrel, as a result of reduced oil production and increase in the lighter type of the mix of Kuwaiti oil, will create a kind of balance in the price, which will compensate for the loss of production due to the reduction. He explained that Kuwait’s role, despite being the fourth largest oil producer in OPEC, is weak in influencing the organization’s decisions.
The meetings of OPEC technical committee resulted in the presentation of two recommendations – reducing production by 600,000 barrels per day, and previously-decided production of 1.7 million barrels per day, and extending the production cuts to the end of 2020 and not March 2020 as previously agreed. However, these two recommendations are dependent on the approval of the Council of Ministers.
The factor affecting the current oil prices has entered a complicated stage that goes beyond the spread of coronavirus epidemic. What has been noticed from the index of oil trading contracts and prices is that, despite the decline of 20 percent of the value of Brent Crude and WTI (West Texas Intermediate), the volume of oil purchase contracts in the last six months was stable. This stability ranges from 250 thousand to 300 thousand daily purchase contracts.
This indicates the stability of demand, and that the factor review affecting oil prices and their value according to their importance are as follows: – The oil prices are going through a weak season in terms of demand during the first and second quarters. US production has increased exceeding 13 million barrels per day. Assumptions regarding the commitment of member states are inaccurate and are not reflected in the market’s figures.
The first phase of the trade war between the United States and China ended with a very weak achievement. The spread of coronavirus and its impact on the economy of China, which imports more than 65 percent of OPEC production; this economic impact has been exaggerated greatly in terms of the economic slowdown and weak demand for oil.
This is enough to increase the fluctuations in oil prices, and the global surplus stock, which is still the main factor. Dr Behbehani highlighted an evaluation of previous factors affecting the volatility of oil prices, which is dominated by the geopolitical side in a very large aspect, stressing that the prices will return to the level of 2019 ($65 per barrel) even after containing the coronavirus (as with the SARS and Ebola virus).
He affirmed that OPEC, instead of following the policy of interacting with the variables in reducing and increasing production, should change the philosophy of the distribution ceiling represented by the shares of its members, adding that it should also establish cooperation, instead of conflict, between traditional oil and shale oil.
Dr Behbehani concluded by saying the geopolitics should be used with the position of the United States as a force that unites with OPEC countries in the future of energy and the extent of developing its environmentally friendly uses instead of following the European Union’s path in imposing its philosophy of renewable energy, which is more geopolitical than being environmental.