19/04/2025
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19/04/2025
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OIL prices are currently hovering around $67- $68 per barrel, despite weak global demand and ongoing uncertainties in the global trade market. The main factor contributing to this is the impact of President Trump’s global tariffs, which are affecting consumers worldwide. The level of tariff increases has shocked the global economy, though it remains uncertain whether the current U.S. administration will maintain its stance or implement a three-month pause. The question here is: how long will global trade remain in such a state of unpredictable turmoil? How will the global economy navigate through these uncertainties? A global recession seems inevitable, and its effects are being felt in all countries.
How will the world economy be reshaped post-recession? It may possibly lead to new mechanisms for global restructuring and sharing, with perhaps a new economic and trade alliance. Will China dominate the global economy? How will other countries fit into a new economic structure and alliance outside of the US? Or will the US be part of this new order? After such a turbulent experience with unpredictable tariffs being imposed without proper foresight or long-term strategy, who will want to partner with America? These actions have caused panic in the global economy, causing market chaos with little to no warning. In just 24 hours, the global markets were thrown into turmoil, with stock markets nearly paralyzed and all eyes glued to the screens, unsure of how to react.
Kamel Al-Harami
As a result, oil companies are scaling back their long-term projects and slowing down drilling activities. Shale drillers, in particular, are reducing operations. These same companies, which helped the US become one of the largest oil producers in the world with over 13.5 million barrels of crude oil production, are now facing challenges. With the current US oil price at $63 per barrel, shale producers cannot continue searching for new oil reserves.
Their internal economics require a price range of $60-$70 per barrel to be viable. Adding to the difficulties, the price of steel has risen by 25 percent due to new tariffs, and a 10 percent levy on other drilling equipment is further raising costs. As a result, the break-even point is being pushed above $70 per barrel. If prices don’t rise to this level, new wells will not be drilled, leading to further cost-cutting and job reductions. We then enter the same cycle, where both major oil companies and smaller local producers struggle to sustain operations amidst low oil prices. The conversation shifts back to the boardroom, where decisions are made regarding future plans, with an eye on potential optimistic scenarios for oil prices.
At the same time, companies must navigate hard challenges, including adjusting to new figures, dealing with tariffs, and cutting costs. The important question remains: how to weather this storm and for how long? Oil-producing countries, too, will soon face the reality of meeting with global financial institutions to borrow billions to cover their massive annual budget deficits. For some of these nations, this will be their first experience with deficit financing. Oil prices are up but demand is definitely down. It is now time to save... and to save wisely.
By Kamel Al-Harami
Independent Oil Analyst
email: [email protected]
