Struggle for oil price stability amid global ‘supply’ surplus

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The ongoing disagreement between the two organizations — one representing oil-producing and exporting countries, and the other representing international oil-consuming countries — revolves around oil statistical figures and numbers. Each side has its own point of view regarding the current and future projections for the next five years or maybe more. We hope this disagreement does not go out of control.

The main concern now is the surplus availability of crude oil, which is expected to impact future trends in oil prices. However, OPEC+ is seeking higher and better oil prices over the long term, due to the heavy reliance of many member states on oil as their main source of income, until the time they diversify and move away from this jewel in the crown, which is the lifeline of OPEC+.

According to the International Energy Agency (IEA), the world will see a surplus of oil by the end of 2030, mainly from the USA, Brazil, Canada, Argentina, and Guyana. These countries are increasingly targeting the traditional markets of the Arabian Gulf region. Despite this surge in oil supply, there is not enough global demand. This is prompting OPEC+ to consider giving up its strategy of reducing its oil production to stabilize the prices at a certain acceptable level.

Meanwhile, new consumers are taking full advantage of OPEC quotas and other measures to achieve some sort of stability. With the supply being ample, and in search for new distant markets, OPEC+ has already curtailed production by more than 6.5 million barrels per day. The possibility of releasing about two million barrels per day from October is under consideration, but it may not work without adversely affecting the current oil price, which hovers around $83 per barrel and is insufficient for OPEC+ to balance its budget.

The desired price range of $90 – $95 per barrel is most likely not possible this year or the next. OPEC+ and the IEA may disagree on the total demand and supply figures, with each side pushing for its own point of view. However, there are questions about the fact that the world will experience a surplus of crude oil in the coming few years. It is hard to agree on a single unified figure, but OPEC alone currently holds 6.5 million barrels in storage that are ready for distribution, along with the additional output from countries like Iraq and Russia.

Meanwhile, other OPEC members such as Kuwait and Iran are still working on increasing their production by more than three to four million barrels per day, which requires the need to find new markets. Producers who are not part of OPEC+ are also ramping up their oil output. With supply outstripping demand, the prospect of reaching $100 per barrel seems increasingly impossible.

Marginal producers are adjusting with a barrel price of $50 to $60 per barrel, and pushing to reduce production costs further. OPEC+ countries are embarking on finding new sources of income to realize their ambitious plans and reduce dependence on oil for revenues. This may require international borrowing or divesting some of their ownership of their jewel in the crown, which seems to be a reality. OPEC+ is set to face huge challenges in the future with more member states still working on developing new fields.

There are hard times ahead of us, so OPEC+ must diversify and move away from oil gradually.

By Kamel Al-Harami,
Independent Oil Analyst

email: [email protected]

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