New phase of oil industry
By Kamel Al-Harami
oil market has suddenly witnessed the emergence of three major oil producers with equal production capacity due to which there is no leader among them.
Probably no one wants to lead the oil market because of many reasons. In this case, the oil market will continue to struggle to stabilize the oil prices while the speculators and financial institutions take the lead.
Oil prices will keep fluctuating based on changes in currencies and the quantity of oil in the inventories irrespective of whether it increased or decreased in the USA or outside. Without actually measuring or taking into account the supply-demand rate particularly since the supply is much higher than the demand, the oil prices are heading to above $60 per barrel.
The three major producers of 10 million barrels of oil have nothing in common. USA cannot be part of any group as the US government neither controls nor owns oil. Russia also doesn’t own oil per se. However, its control over the oil companies has a great impact on its oil and gas policy, if not total control.
This brings us to back to the question about who will lead and control the oil market in the absence of the swing producer. Saudi Arabia played its role for many years and managed to stabilize the oil market considerably for which it received great recognition.
The arrival of the shale oil revolution took OPEC by surprise and closed the doors for importing the sweet oil produced by some OPEC countries, forcing the latter to take necessary action. However, they were unable to do so while Russia continued to produce 10 million barrels and refused to cooperate. Meanwhile, Saudi Arabia lost its market share to other OPEC members while the organization was producing at its maximum capacity, exceeding the agreed limit of 30 million by an additional one million.
None of the three major oil producers are prepared to compromise and everyone is looking at the old swing player to act alone for the sake of stabilizing the oil market.
With the new phase in the oil industry following the emergence of three equal oil partners, Saudi Arabia cannot be forced to reduce its production for the benefit of the other two producers especially when its cost of production is the lowest and it does not have any common grounds to share with.
The fact that oil prices have increased and is bound to continue increasing is good news. Supply is higher than demand, so in the absence of any leading oil producer controlling the market, ‘Wall Street’ will end up becoming the ‘mover and shaker’ of the oil market. Why not, if it can keep the oil prices up all the time?
Email: naftikuwaiti@yahoo.com