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WITH the downward trend of the oil price, will OPEC+ take any action or is it still early? Is it that the oil producing countries have generated enough cash surplus? Is there hope that the drop in price to below $80 a barrel is temporary, and it will bounce back during the third and fourth quarter of this year, giving time for OPEC and its partners to adjust and monitor the oil markets?
The concerns of reinflation coupled with the threat of recession could delay any actions, especially with the weakening of the US dollar, which may lead to higher demand. The world economy on the other hand does not look strong. The main concern seems to be the low stocks of oil in the USA, and the continuing withdrawal from the oil reserve, with any fresh replacement happening in May.
As the oil price weakens, it may be an opportunity to buy oil now instead of waiting to do so later, which may push the oil prices up, and thereby losing the golden opportunity, like what happened three months ago with the US administration. It had necessitated OPEC+ to reduce production, forcing the USA to delay its buying decision.
This had pushed the oil price beyond $85 a barrel. The current balance with oil producing countries is almost in charge like never before in managing the supply chain, even though it can’t manage the world economy the way it is, or the oil demand, or the inflation and recession. It is however closely monitoring supply, knowing well that oil companies are not investing much in oil exploration and production, which is causing a dilemma for the world consumers.
Despite the regular reminders by governments to move away from fossil fuels, it is a well known fact that oil will continue to have the biggest portion of energy well into 2045, with its current rate of 31% to 29% in the future. This leaves us to do what we as oil producers know to do and what OPEC is best at, by investing more, and gradually adding additional premium, as cost for current and future investments. Certainly, the energy outlook will be substantially different in the years to come, allowing OPEC to be more free in command.
Do we envisage a new mutual relationship between oil consumers and producers, or will the world surrender to oil producers? We hope not, as OPEC is not the enemy. The two must live with mutual benefits under the same roof. However, its right to produce new oils must always be recognized. On the other hand, OPEC+ must state its good intention of moving forward with an additional supply of fossil fuels, but it must not ignore the future trend towards green alternatives, which we all have to face for the future. Solar, wind and new clean energy must prevail and the world must make room for it. The role of OPEC+ is to monitor the oil prices and ensure it covers all its investment costs for the production of one barrel of oil. Perhaps oil will not drift for long.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]