'Greasy' times. Much? (Part 2)

Still cheaper than water in Saudi Arabia, oil prices are triggering up and is muddling the Kingdom. A discernible commodity booting the international economy to a new low, increased oil prices are pestering the oil rich Saudi Arabia.

So, is it the reduced demand for oil? Not really, it is the unhoped supply in the market that is butting the world economy.

Saudi Arabia being the most prominent member of the Organization of Petroleum Exporting Countries (OPEC) is venturing hard to equalize and stabilize the price along with its counterparts from OPEC. While in the process of ballasting the price, the oil rich Kingdom is in talks with other non-OPEC members too in order to bring the exalted price to a justifiable level.

With regard to stabilizing the prices, Saudi Oil Minister, Ali Al-Naimi said that he is willing to cooperate with the OPEC and non OPEC oil producing nations in order to normalize the prices.

Venezuela’s Minister of Petroleum, Eulogio Del Pino expressed that the meeting with the Saudi Oil Minister earlier this month was a “productive” one.

The Venezuelan Minister is on a tour to the oil producing nations calling for an emergency meeting.

The price have gone to a 12 year low (since 2003). Venezuelan economy is strapped of cash and thus has prioritized the issue.

The above meeting was followed after Eulogio Del Pino, Venezuela’s Minister of Petroleum met Vice President Gazprombank Boris Ivanov of Russia to discuss the prevailing conditions in the first week of this month. Both promised to join in efforts to stabilize the prices.

Alexander Novak, Russia’s Energy Minister had expressed Mr. Eulogio to conduct a meeting with OPEC and non-OPEC oil exporting countries in order to come to a complaisant conclusion.

The price went to $27 last month, an execrable one! Reports from the Saudi press agency are that both the nations, Saudi Arabia and Venezuela promised to hold a meeting with the oil producers around the world in order to fix the brewing issue.

The meeting, however, didn’t show any signs that the largest producer of oil is willing to cut short the supply as there is demand and it just doesn’t want to lose its customers.

One of the OPEC sources said “They seem like just general talk about cooperation but nothing about cutting production”.

Another OPEC source said that the main issue is Iran and not Venezuela.

While one of the Iranian news agencies reported that they had proposed a meeting with the OPEC and non OPEC countries like Russia and Oman but none of the OPEC members gave a ‘green signal’ yet.

Oil production beefed up to its highest in the first month of this year as Iran increased its sales and Iraq also boosted the supply along with the already existing largest supplier, Saudi Arabia.

Saudi Arabia has stated that it is striving towards in bringing stability and planning to review its year-long policy of not supporting prices.

Meanwhile, Petroleum Minister of Venezuela with oil deposits of 297 billion barrels tweeted “Next to Minister Al-Naimi evaluating the current situation of the international oil market. The OPEC and non-OPEC countries should reach a consensus for stability in the world oil market”. The Saudi Arabian deposits are estimated to around 265 billion barrels.

With the oil prices dipping down to 70% since 2014, OPEC members have been persuading the non-OPEC member Russia on cutting its supplies so as to reduce the glut. On a similar note, the Algerian Prime Minister, Abdel Malek Sellal in his speech last year in Tehran at the Gas Exporting Countries Forum asked the leading oil market players around the globe to control their output levels.

The Algerian Prime Minister added that “If the petroleum market is not controlled, it will witness strong volatility for prices”.

OPEC members on the other hand aren’t willing to cut the output alone. OPEC is of the opinion that the OPEC countries wouldn’t slant down on the supply unless the non-OPEC countries like Russia edge off their supplies too.

“Saudi Arabia hasn’t said they won’t cut, but that doesn’t mean they are going to increase production either—it’s very lose news” said Bjarne Schieldrop, SEB bank analyst.

(Source: Reuters)

Though last year in November, a senior Gulf OPEC delegate claimed that OPEC was likely to stick to its no cut policy.

So how exactly have the slanting oil prices been since a while? Let us find out.

Apart from other bench marking classifications like OPEC Reference Basket, Dubai Crude, Oman Crude and West Texas Intermediate (WTI). Brent is the lead in the pricing globally with a hold of two third of the worlds internationally traded crude oil supplies.

Brent is light crude oil (not as light as WTI). It is best suited for petrol and middle distillates.

The other classification, WTI’s (West Texas Intermediate) price had gone to as low as $30 per barrel which was once $100. Going even before, just before the financial breaking of 2008, the price had gone up to $140!

It is estimated to go even lower with regard to the present conditions.

The fluctuating oil prices didn’t hamper the quintessential image of the Kingdom until 2014 but the following years didn’t seem to be good. The price as on 8^th February, 2016 of Brent crude oil was $31 per barrel which isn’t a good thing as the prices are fluctuating since 1^st February. The price in the beginning of this month was $32 per barrel, which went down and came up again, which is undoubtedly wobbly.

New-year for oil wasn’t really slick as it went to its lowest in 12 years going to as low as $27 in mid-January.

The prices weren’t keeping well last year either but was at least better than this year.

The recorded price of oil in the month of November ranged around $40 per barrel. An acceptable one still (if you consider this year’s).

 The downfall started in the year 2014 when the price swayed from $100 per barrel to $50 per barrel. Halving the price!

Though the price had seen a rise in 2015 for a while but the ongoing clashes and crisis in the adjoining areas of the oil rich country just couldn’t clasp it down.

The Venezuelan Oil Minister wants to call for a meeting before the June meeting with the OPEC as well as the prominent non-members of the organization in order to come to a unanimous agreement to ‘freeze’ the production for a while.

Eulogio Del Pino proposed the idea to ‘freeze’ the oil production at the current level after his visit to Saudi Arabia, Qatar, Russia and Iran earlier this month.

As per the analysis of Mr. Bjarne Schieldrop, we can side that Saudi Arabia is at least warming the idea of cutting the supply in the market, unlike Iran, which is adamant and is finding it a stumbling block after the recent lifting of ban.

Iran doesn’t seem to agree with the idea of slowing down the production as it feels this would be a blockade for them in their process of recuperating lost market share since the ban on Iran in 2012 on nuclear grounds.

Rather, Tehran has claimed to increase the production of oil up to half a million as soon as the sanctions and ban is lifted and is set to increase the exports by 2.5 million barrels in the coming year.

With more oil and less buyers, the demand and supply ratio is tend to be affected and after Iran’s claim of providing discount to its customers, the already low price of oil in 12 years is further expected to go down.

The ongoing discussion among the top producers and eminent members of OPEC is that there is a great chance that the controlled supply of the discernible commodity might bring a relief.

The continuous downturn has been attributed to a prolonged global oversupply and low demand, as well as unwillingness of oil-producing economies to cut output in fear of losing market share.

OPEC in its last meeting held in December 2015 came to the conclusion that in view of the aforementioned, and emphasizing its commitment to ensuring a long-term stable and balanced oil market for both producers and consumers, the Conference agreed that Member Countries should continue to closely monitor developments in the coming months.

The next scheduled meeting for OPEC is on 2^nd June, 2016 in Vienna, Austria. In the 169^th meeting, the issue to be discussed would be the same.

Arguably ‘freezing’ of oil supply in the market might be a temporary solution for the producers as they are already producing their near capacity. This cutting down of the price or probably the better word would be freezing might help for a while. The key though remains the same, how to curb the increased prices!?

While the oil prices are reaching new lows. These prices have undoubtedly profited American businesses and consumers but countries around the world whose economies are dependent on oil like Saudi Arabia, Libya, Venezuela and many more are feeling the burn of the historically low prices. This essential commodity is the back bone of these economies which are 90 to 95% dependent on it. The continuous fall in the price would undoubtedly effect these countries in the long run.

The current cycle of the oil prices globally which has resultant in the erosion of policies that had subsidized domestic energy consumption has had a dramatic impact on the sovereign wealth.

With Saudi Arabia too fighting the rise in the oil prices, for the first time, planned the budget in a deficit. Nearly 300 billion going in the deficit slot. This major shift would affect the future generations of which the impact can already be seen in the present regional countries’ youth. Unable to find job, there is mass unemployment in the public as well as in the private sector.

The rising price is undoubtedly the top priority in the region.

The external and fiscal balances of oil exporters has weakened due to low oil prices. Not just Saudi Arabia, many GCC oil exporters are facing fiscal deficits for the first time in two decades.

On the other hand, one of the OPEC sources said that “I doubt that there is an easy agreement because it would be so sensitive for some countries”.

Not only calling it sensitive, the concern is that OPEC and non-OPEC countries must and should come to a common ground and chew over the topic so as to bring about a long term sustainable price.

Government of Saudi Arabia, which has its 90% economy dependent on oil and the Venezuelan government functioning more or less on this indispensable commodity have discussed quiet a lot in the Capital on the same.

Without involving Iran, the OPEC members cannot come to an endured solution.

Whatever the decision might be, the OPEC must make sure that the solution is based keeping in mind the non-organization members too. The ‘Greasy’ times must pass. After all ‘A nation in need is a nation indeed’.