Oil below $45 per barrel
Prices down 20 pct this year
By Kamel Al-Harami
What is the bottom level? Is it below $40 or could it be anyone’s guess?
With the oil prices tumbling by more than 20 percent this year, it represents the worst performance since 1997. This current trend of the downward pressure on the oil prices will not end in the absence of a prompt response from OPEC and non-OPEC countries in the coming days due to long holidays in major oil producing countries.
The decline in oil prices started immediately after OPEC made the announcement to extend the production cuts for another six months, without realizing that it needed some tangible support of increased production cuts by more than 1.8 million barrels in order to accelerate the rate of reduction in surplus oil in the international oil market.
There is no quick way to stop the decline unless the USA shale oil producers lose money over their current high production level with the current oil prices of below $45. However, this is not likely to be the case, as they know for sure that the oil prices will jump back to $45 and above due to the intervention of OPEC sooner or later. They seem to have more confidence in the actions of OPEC to save them from any future bankruptcies.
The lack of full commitment by OPEC members to the OPEC’s decision and the increased production by Nigeria and Libya did contribute to the decline in oil prices. Like we stated last week, a miracle is needed to rectify this decline.
OPEC must come together again and agree on the new limits to the production cuts. Saudi Arabia may have to take on a bigger cut in order to reduce the huge surplus and stabilize the oil prices hopefully before the end of this year. The increase in shale oil production must be tackled but the challenge will take a long time.
So for the time being, we have to live with the low oil prices, and consequently work on lower incomes and heavier deficits in the budgets of oil producing countries.