(MENAFN- Arab Times) Now that the oil prices are falling below $50 per barrel, we are wondering how much further it will fall. The oil prices is expected to reduce further if the over production of oil will continue at its current rate, particularly after the Iranian oil enters the market.
The surplus oil in the market today is over 3.2 million barrels and there are no signs of the easing of oil production or consumption of the surplus oil in the near future. We cannot bet on the global economic recovery of the world. It depends on the cutting down of the production and the producer who will take the first step. Firmer oil prices will require drastic reduction in production by all oil producers down to a rational level.
However, who is going to convince Iraq to reduce its output? In addition, we will have to face Iran which will push for huge production increase in defiance of everyone due to its hunger for hard cash. Oil price requires nothing more than proper political decisions. It needs coordinated efforts from the main producers Saudi Arabia and Russia.
These countries have to sit together and find the best solution as all oil producers are suffering equally. Perhaps Russia is suffering more but it must be a part of the solution based on the OPEC formula which also includes Iran.
Cost cutting and reduction in subsidies are not being implemented even though OPEC countries spend more than $200 billion for providing fuel and electricity subsidies to their citizens without genuine joint action for reduction in consumption. Crude oil prices of $49 per barrel will not help at all in this regard. Lower oil producers are pushing all OPEC governments to go to the open market, borrowing money internally or externally depending on the amount of funds they require.
If they require more than $20 or $30 billion, then they have to go through international consortium unlike Kuwait, which will withdraw from its reserves to balance its budget at the current rate of shortage. Reduced oil prices will definitely cause havoc. Sooner or later, the big oil producers must meet to find that magic formula for stopping the oil prices from deteriorating further to $30 or $40 per barrel. However, oil price of even $50 per barrel is not something for us to smile about.
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