OPEC Still In Search Of Magic Number

(MENAFN- Arab Times) Ten months have passed and OPEC is still trying to figure out the breakeven cost of producing one barrel of shale oil in the USA, while the crude oil prices have dropped by more than 60 percent to below $50 per barrel currently.

If the petroleum organization is still searching for this magic number, why has it opted for free production rate for all, which forced the oil prices to drop sharply and created a surplus of more than 3 million barrels in the market?

Some slowdown is currently being witnessed in certain shale oil fields. Is it because of the reduction in prices or because that sector is unable to cope with the daily operational costs while the financial houses are starting to pay back part of the loans before going bust?

Nevertheless, this problem is affecting not more than 10 percent of the shale oil producers while the others are coping fine and managing well by continuing to add volume that may be exceeding 4.2 million barrels per day. It also means that the majority are cutting costs and downsizing their manpower to the minimum to remain afloat in consideration of the reduced crude oil prices.

Meanwhile, the oil prices are continuing to drop but OPEC and non-OPEC officials continue to repeat the same message which is, "Oil prices may get as low as $30 or even lesser". None of the OPEC members are willing to cooperate irrespective of how low the oil prices may fall. While such a situation will not benefit anyone, no one seems to be considering the actual production cost of shale oil in order to establish a floor price for oil and work around it.

Not knowing this magic number will cause more oil to enter the market without being stored and create further surplus in the market.

Increased pressures must be imposed on Russia to participate in any future production cuts for the benefit of all oil producers. OPEC members that are in good terms with Russia, such as Iran, Algeria and Venezuela, should initiate such a move in order to start the ball rolling to stabilize the oil prices.

OPEC has done enough in the past to help Russia. It is time for the latter to return old favors.

In the meantime, OPEC should continue to look for the magic number related to shale oil in order to at least reach a consensus on the price levels of oil.