Gulf countries are likely to feel the heat of revenue loss if oil production is not slashed at the Organisation of the Petroleum Exporting Countries (OPEC) meet in Vienna on Friday, analysts have predicted
Saudi Arabia’s oil minister Ali Al Naimi indicated that “he is in no mood to cut oil production in a bid to reduce supply and support prices”, reported by Reuters on Tuesday.
“Demand is picking up. Good! Supply is slowing, right? That is a fact,” he said ahead of the group’s key meeting in Vienna.
Meanwhile, Iraq’s oil minister Adel Abdel Mahdi, speaking at the OPEC International Seminar in Vienna on Wednesday, said “The equitable oil price will be between US$75 and US$80.”
He added that there was optimism and general acceptance with the current situation, when asked whether there was consensus among OPEC to keep the group’s output ceiling unchanged.
Oil prices have plunged by more than 50 per cent since June last year. From US$115 per barrel oil prices fell to less than US$50 in January before recovering later as demand picked up and shale rig count went down in the USA, Gulf News reported.
Oil prices have plunged by more than 50 per cent since June last year. From US$115 per barrel oil prices fell to less than US$50 in January before recovering later as demand picked up and shale rig count went down in the USA, Gulf News reported.
OPEC countries produce more than 30mn bpd with Saudi Arabia being the largest contributor with more than 10mn bpd. The UAE produces about 2.8mn bpd.
Mamdouh G. Salameh, international oil economist and consultant to Word Bank on energy, added, “If OPEC decides not to cut its production by at least two million bpd on Friday, then everyone will suffer including Arab Gulf oil producers, Russia and USA shale oil producers.
“Gulf oil producers would be the most badly affected. In February this year alone, Saudi Arabia’s foreign exchange reserves fell by US$20.2bn, the biggest monthly drop in at least 15 years according to data from the Saudi Arabian Monetary Agency.”
He revealed that Algeria, one of the world’s top natural gas exporters, saw its funds fall by US$11.6bn in January, the largest monthly drop in 25 years.
“At this rate, it will empty the reserves in 15 months. Moreover, according to USA estimates OPEC members are expected to earn US$380bn selling their oil this year. That represents a US$350bn drop from 2014, the largest one-year decline in history.”
Edward Bell, commodity analyst at Emirates NBD, said that there won’t be a permanent decline in the USA shale output if the organisation decided to keep the oil production unchanged.
“USA shale producers are already gearing to restart production, so we wouldn’t expect a significant change in their planning unless prices started to fall uncontrollably, which is not our central view,” Bell noted.
Bell asserted that OPEC producers would focus on long-term market share and demand for oil, not short-term price relief when they meet in Vienna on 5 June 2015.
“High oil prices, while helpful to regional treasuries, also help incentivise high cost oil from outside the Gulf such as shale in the US, oil sands in Canada and deep water in Brazil as well as non-oil energy sources. So a slow and grinding rise in prices may be more sustainable in the end to keep revenues flowing into the Gulf region,” he added.
In the last meet in November 2014, the cartel had decided to keep the output levels unchanged adding pressure to the downward slide of oil prices.
