The Oil price started to slide from the mid $80s down to the recent $45 after Russian President Vladimir Putin said Russia would not cut the 300,000 barrels per day which the market expected. It was the same day as the OPEC meeting in Vienna. The Arabs must have felt compelled to go with this strategy, Sheikh Ali Al-Naimi declaring that Saudi would not cut production either. The pronouncements of that day have left a big scar on the landscape, with the Russian economy nearly entering a period of recession. The OPEC nations have tried to bravely weather the storm, relying on the abundant surpluses they had built up when the price was high.
But pressures from the populations at home together with anger at the absurdity of pricing the valued commodity so cheaply, has seen the Venezuelan President Maduro trying to gather friends for his cause. A low Oil price may be okay for a major producer like Saudi Arabia, who would be profitable even if the price dropped further, but for Iran to say they would be happy with a price of $25 per barrel is just tongue-in-cheek. That sardonic tongue has been well interpreted, and the price has started to rally.
Even today, the words of OPEC Secretary General El-Badri speaking in Davos today, suggest the floor has been reached. According to him, the low current oil prices may obtain for this month or so, but are likely to rebound from now on.
With a low Oil price starting to hit shale and fracking producers in the U.S. and elsewhere, with announcement of job cuts in this industry worldwide, the Saudis must see that they are hurting their friends while they were trying to help, and it has been at a huge financial loss to themselves.
The current oil surplus on the world markets will by common sense bring cuts in production in most countries, bar those who would continue producing more regardless in an effort to wear down their competitors and take as much market share as possible. But certainly, on pure financial logic, why produce more to achieve a lower gross figure? Some calculations suggest a price of $50 to $60 per barrel would be a cut off point. Cheaper than that is just throwing away this precious commodity.
There is no sense in overproducing now and suffering shortages later.
A stable honest price will do the whole world a power of good, helping the OPEC and other oil producing nations with their revenues, and even allowing the shale and frackers to get back on stream, which will help maintain the only-recently-created jobs in that segment of the energy industry.
Choosing the golden route of stable pricing and stable supplies would be good for the whole world.
I predict this will be a golden year for global growth, as more and more nations try to fulfil the dreams of their people, and create growth and prosperity. It is possible, if all are guided by the urge for peace and equitable exchange of resources, which God has granted to every nation. What could be better than to win a prosperity for their people with those resources?
I am guided by a feeling that our Heavenly Father would be happiest to see all nations live in peace and prosperity.
I send you my good wishes for the New Year.
Durudarshan H. Dadlani