Abu Dhabi: An oil expert said oil prices could drop to $50 per barrel if the Organisation of the Petroleum Exporting Countries (Opec) does not change its decision to cut oil production.
“It is not too late for Opec to reverse their earlier decision and cut production. Failure to do so would push the oil price down possibly to $50/barrel,” said Dr. Mamdouh G Salameh, an international oil economist and World Bank Consultant on oil & energy.
He termed the Opec’s decision not cut production by at least 2 million barrels per day to absorb the glut in the oil market as “very wrong”.
“If they cut their production, Russia and Mexico would have joined them and cut production by 500,000 barrels a day and 300,000 barrels per day respectively, a total of 2.8 mbd capable of removing the glut and stabilising the oil price,” he said.
Opec which met in Vienna last month decided to keep the production unchanged despite pressure from some member countries to slash output to stabilise prices.
From a peak of $115 in June, prices slid to five year low of less than $63 on Monday. International Energy Agency (IEA) cut its forecasts for global oil demand growth in 2015. It predicted social instability in some countries if prices continue to fall.
Saudi Oil Minister Ali Al Nuaimi who spoke to reporters last week indicated that the country is not prepared to cut production.
“Why should I cut production? You know what a market does for any commodity. It goes up and down and up and down,” Bloomberg quoted Al Nuaimi as saying in Peruvian capital Lima.
Saudi Arabia possesses 18 per cent of the world’s proven petroleum reserves and ranks as the largest exporter of petroleum. The country pumps more than 9 million barrels of oil per day.
Dr Mamdouh said Saudi Arabia tried to convince other Opec members that a low oil price would undermine the foundations of the US shale oil production when in fact it has Iran in its sight. “Saudi Arabia was determined to continue its proxy war against Iran by harming the Iranian economy which needs a price of $125/barrel to balance its budget.”
According to him, global economy could not reconcile itself with such low oil prices because this will curtail global investments particularly in oil and energy. “Moreover, the global oil industry would be damaged. The seven major oil companies in the world need a price of $125-$135/barrel to balance their books. “
“They have already started to sell some of their production assets and to reduce their future investments which will translate in two years’ time into a smaller share in the global oil production.”
He projected that the oil prices will start to recover in the first quarter of 2015 and could recoup most if not all of their losses.
“And whilst oil consumers around the world will enjoy for a short while the low crude oil prices, eventually consumption will overtake production and that will push oil prices steeply up.”
On Friday, Standard & Poor’s Ratings Services said that a period of lower oil prices will exacerbate existing structural weaknesses in Bahrain’s public finances. “If the resulting squeeze on government revenues does not translate into reform that improves the sustainability of Bahrain’s fiscal position, this could put pressure on the
ratings,” S&P said. However, growth expectation for the country to remain stable, linked to forthcoming disbursements from the Gulf Cooperation Council (GCC) Development Fund and to Bahrain’s relatively diversified economic base.
