Today, the price of oil is $84 a barrel -- down from its peak of $87 several weeks ago. Here are some fundamental reasons behind the decline: higher supply in the market and the USA’s interest is going up, making oil more expensive. Two OPEC members are increasing their production, with the US administration closing its eyes over the increased volume. Iran is pushing more crude into India and China to respect the embargo and accord or understanding with the USA. Still, it is not moving any oil to Europe. The other is Venezuela, which is moving its oil to the USA.

This allows US companies to settle their outstanding debts and monies like Chevron that is heavily invested in the country, knowing the need for more oil. Venezuela has the biggest oil reserve in the world despite its heavy oil deposits, which need a more advance technology that Chevron and American oil companies can provide. Both countries are exempted from quota restrictions, which could go for maximum production until supply stabilizes and they are insured from any imposed sanctions. The USA remains relaxed and silent, while Iran is pushing its maximum crude oil production. So far, the OPEC+ is satisfied with the current oil price -- as long as the price remains above $70 a barrel. It cannot enforce its production quotas on the two countries that have been suffering from financial losses and have been deprived of daily cash.

Perhaps, time has come for the OPEC+ to accommodate the new volume from its founding members. Iran’s oil production stands at 3.1 million barrels -- the highest since 2018, most of which is heading towards India and China. Iran’s production capacity is around 3.8 million barrels per day, which can easily be achieved once the boycott and embargo end. India is almost saturated with Russian oil. Its refineries can no longer accept Russian oil, considering its refining limit.

Thus, there is no more room for Russian oil. OPEC+ is maintaining its production cuts until next month. Aramco announced its plan to continue the one million barrels cut until October of this year. Perhaps, OPEC+ is making room for its deprived members to increase production. On the other hand, Venezuela is struggling with its oil production. It is keen on improving its volume to about 900,000 barrels per day from its low of 700,000 in 2022.

The new volume coming out of OPEC+ is a good and positive sign for the US administration to regulate the price of oil in the coming election year and to control infl ation, taking into consideration that the global demand for oil will reach 102 million by the end of the current year. The oil price decline could be bad if it reaches the level that stimulates growth and prosperity, leading to higher consumption of oil and firmer crude oil price.

By Kamel Al-Haram
Independent Oil Analyst

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