This is the outlook for oil prices in the coming months, as Brent crude is hovering around $61 a barrel, and U.S. oil is trading in the mid-fifties per barrel. Both levels are unsatisfactory and are hurting oil producers. However, the blame lies with all producers. Each one is pushing to increase production to gain market share, trying to capture new markets or a bigger share. Since oil production is essentially open to all, with no monitoring of production quotas, prices are allowed to drop further, while producers anticipate higher demand growth in the coming years. With the current political situation becoming more stable and less tense, and ongoing efforts to resolve conflicts behind closed doors, the world is moving towards greater understanding, stability, and tranquility.

This progress paves the way for oil prices to remain steady, with hopes for an increase in oil demand. However, it remains to be seen whether India will refrain from buying and importing Russian crude oil. The question is - who can supply India with surplus oil at equally attractive discounted prices and terms? Replacing a major supplier like Russia, especially with such favorable conditions, will be a big challenge for India, requiring considerable political muscle to wean itself off Russian oil. We have to wait and see how India will handle the pressure from the U.S. administration to break its oil supply ties with Russia, and how India will be rewarded by the U.S. for complying. It is very difficult for India to switch suppliers on such short notice.

The situation looks similar to what Europe is currently facing regarding oil and gas supplies from Russia. With Russian-built refineries in Europe, there is a real risk of panic and shortages of petroleum products in many European countries, unless the U.S. temporarily eases its restrictions and allows Europe to continue trading with Russia in hydrocarbon activities. Today, all oil-producing countries are pushing to sell more oil into the market, creating a surplus and causing further weakening of oil prices. There is concern that prices could drop to $60 a barrel, or even the mid-fifties, similar to the current U.S. oil price of around $57 a barrel, sparking panic in the oil markets. Meanwhile, OPEC+ appears unable or unwilling to curtail supply, seemingly having learned a lesson that any crude oil supply reduction and resulting price increase mostly benefit non- OPEC producers, leaving OPEC+ with minimal gains.

As a result, their current policy of not interfering in the market may be the most practical solution by spreading the pain equally. We hope that OPEC+ has indeed learned this lesson and will avoid further supply cuts unless they clearly stand to benefit first. We expect oil prices to decline further once the geopolitical tensions between Russia, the U.S., and Ukraine begin to ease in a satisfactory manner, helping to avert the threat of conflict and crisis. The current ample oil supply, despite peak demand season, raises questions about how low prices might fall, and whether oil-producing countries will intervene to stabilize or boost prices.

U.S. crude is already trading near the breakeven point for profitability, and many producers around the world may not be able to sustain such low prices for long. However, in the absence of firm action from OPEC+, intervention seems unlikely. The coming months will be critical for oil-producing countries and companies, especially in terms of their financial performance and year-end results. Weak profits, or even losses, will certainly be unwelcome news for shareholders and stakeholders alike. Current oil prices are undeniably weak, and any recovery is likely to take time. Let’s hope Brent crude doesn’t fall to the $50 level like U.S. WTI crude, as that would be deeply troubling for oil-exporting nations.

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