Business
Bad news – oil prices plunge below $70 pb
Demand for oil is weak from major consumers in Asia, including China, Japan, and South Korea, with a reduction of more than 400,000 barrels per day. These countries are the main consumers of oil from Arabian Gulf producers, so the decline will have a major impact on Gulf economies without exception. In addition, demand in the United States has slowed by 70,000 barrels per day, along with reduced demand from Mexico. Oil prices have now fallen below $68 a barrel, a level not seen even during the 2009 financial crisis or the COVID-19 pandemic.
The sad reality is that oil prices are now much lower than in previous years, possibly reflecting the impact of U.S. tariffs, which may also be affecting domestic demand. Meanwhile, Europe and emerging markets such as India, Pakistan, and Vietnam show reduced demand. This could suggest that Far East countries either have surplus oil with no available storage capacity, or they are holding off in anticipation of further price drops. This is certainly bad news for OPEC, which recently increased crude output, pushing more than one million barrels per day in excess into the market.
With global oil demand at 104 million barrels per day and supply at 105.2 million, the market is now oversupplied by over one million barrels daily, and it is struggling to find buyers. As a result, prices have dropped below $68 a barrel, with no immediate signs of recovery. The question remains whether OPEC+ will return to its traditional policy of supporting crude oil prices by cutting production, a strategy that may ultimately benefit non-OPEC producers and erode OPEC+’s market share. This could lead to the same cycle of repeated policy shifts. Or will this time be different, as OPEC+ becomes more accustomed to outside borrowing? The oil market needs stability and clear guidance from OPEC+ to take the right actions that balance supply while managing oil prices at an acceptable level. This raises questions about the effectiveness of the quota system and the success of the overall policy of OPEC+. Most of the time, their measures work only briefly before the organization relaxes its stance. When oil prices rise, other producers increase output to capitalize on the situation, undermining OPEC’s efforts. This cycle repeats as prices eventually harden again.
The decline in oil prices is likely to continue, and nothing can change this unless OPEC+ intervenes as usual by calling for further production cuts, resulting, as always, in losses for the organization. As mentioned before, OPEC+ is relying heavily on borrowing from external banking sources to cover its deficits, a trend that is expected to continue unless oil-producing countries reduce their expenses and cut their budgets. In addition, it is important to explore new sources of income. Governments must also focus on creating jobs for recent graduates despite the drop in oil revenues. The future looks challenging, with lower oil prices and reduced income from oil. Our governments need to find alternative revenue streams and provide job opportunities for new entrants to the labor market. We must face these new realities – weaker oil prices, higher expenses, and growing numbers of job seekers. These are the new challenges facing the Arabian Gulf countries amid a period of lower oil prices.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]
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