(MENAFN- Arab Times) There are clear indications that the current oil glut of more than 3 million barrels of oil will continue into the next year even though non- OPEC producers have reduced oil production by more than 400,000 barrels from its peak last year. However, this was replaced by the continuous persistence of OPEC to increase oil production by all means, forcing the oil prices to reach its current level of below $50 per barrel.
This means the loss will be more than $50 per barrel compared to last year. The same will continue next year without any sign of improvement in the prices while the production will continue to increase and the current surplus will not disappear in the next six months. This will mean more bad news for the oil-producing countries as it will lead to deficits in their income and will force them to borrow from the open markets to balance their books. None of the OPEC members can survive on oil prices lesser than $70 per barrel, as only the basic needs can be met and the expenditures on infrastructure and mega projects have to be drastically reduced.
The only solution to this dilemma is full cooperation between the OPEC and non-OPEC oil producers to agree on a volume cut of more than 3 million barrels and a price range that can prevent or at least limit the development of shale oil and other expensive oils for some time. Any volume cuts without price guidance will certainly lead to the growth of non-traditional oil, which will bring us back to the same situation that we are all in today. The issue of Iraq and the new quota must also be taken into account by OPEC before deciding on stockpiling or offloading the OPEC oil supply. The success of such a solution will definitely require long and tedious efforts and diligent efforts as well as participation of all OPEC and non- OPEC members including Russia, Norway and Mexico.
Saudi Arabia and Russia must spearhead such meetings. These meetings will not be easy but they are essential for bringing stability to the oil market. Otherwise, the situation could worsen and the oil prices can easily drop to below $50 per barrel, which will not be good for the oil countries because 70 percent of their state revenues are dependant on oil source. The situation is serious and a compromise must be reached in order to prevent further withdrawals from international banks or from their own reserves, which will not sustain those countries for a long time. The situation is bound to worsen without a joint intervention by the major oil players.
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