ILNA: Saudi officials have expressed readiness for crude price as low as $90 or even $80 per barrel.
The officials have recently telegraphed a message in private meetings with oil market investors and analysts that the OPEC’s largest producer is ready to accept oil prices below $۹۰ per barrel, and perhaps down to $۸۰, for as long as a year or two, Reuters reported Oct. ۱۳.
However, Parviz Mina, an international petroleum consultant, believes that the high costs of extracting shale oil in the U. S, as well as high production expenses for ultra - deepwater oil fields such as the fields on the Brazilian coasts will prevent the fall of crude oil price below $۹۰.
If the price falls under $۹۰, the production in the mentioned fields will partly shut down, Mina, who served as a member of the OPEC(Organization of Petroleum Exporting Countries) Long - Term Strategy Committee, told Trend Oct. ۱۳.
“The procedure will automatically lead to the growth in the price over $۹۰ per barrel, ” he added.
The international crude prices have sharply dropped in recent weeks.
The OPEC Reference Basket(ORB) declined for the third consecutive month and dropped almost $۱۲ or ۱۱ percent of its value since June to an average of $۹۵.۹۸ / b in September.
On Oct. ۱۰, the OPEC Reference Basket weakened to $۸۶.۴۳ / b, $۹/۵۵ under the September average.
Thomas Strouse, a Dubai - based analyst with the Energy Intelligence Group which analyzes the global energy industry, also believes that the crude price will not experience $۸۰ per barrel level.
“Gulf oil producers - Saudi Arabia, Kuwait and the UAE express confidence that oil prices will reach a price floor before dropping below $۸۰ per barrel, primarily due to the high cost of production of U. S shale oil, ” Strouse told Trend.
“However, a big uncertainty in the market is the cost of the marginal barrel in the U. S, and how much production would actually be cut back as a result of prices dropping below that threshold, ” he added.
“We project, based on a survey of shale producers in the U. S, that shale liquids will start getting shut in below $۸۰ per barrel, but even then, low prices would have to stay in place for a sustained period of time to have a big impact on shale production, ” the expert underlined.
Fereydoun Barkeshli, the president of Vienna Energy Research Group, explains that the shale oil production capacity can be sustained for the life span of the wells under operation.
“As the U. S can probably continue shale oil production with prices of $۷۵-۸۵ for a period of around ۲-۴ years before new investment might be required, ” he underlined.
However he emphasized that “the shale oil has not yet been tested by the markets and stock exchange and therefore we got to rely on guesstimating. ”
OPEC unlikely to make cut in output
“OPEC is unlikely to make a collective cut in output at its meeting in November if prices remain where they are today, at just below $۹۰ per barrel, ” Thomas Strouse said.
“It will likely require a sustained reduction to $۸۰ per barrel or less to stir OPEC into action, ” he underlined.
In the meantime, it will likely to be Saudi Arabia that will balance the market by adjusting production each month, Strouse said, adding there are limits to how far it is willing to cut unilaterally without a collective action from the group.
Despite Strouse, Parviz Mina forecasts that the OPEC will make a decision on decline of its output by ۵۰۰,۰۰۰ barrels per day from the current level of ۳۰ million barrel per day.
“If the oil price falls to the level which makes risk on the OPEC members’ development projects, they will be forced to cut the production, ” he added.
Price fall not threatening Saudi oil production projects
“New development projects in Saudi Arabia are not at risk with the recent drop in price, ” Thomas Strouse said.
“Unlike the high - cost shale oil production in the U. S, which according to the most estimates can cost as high as $۷۰ - $۸۰ per barrel, the most production in Saudi Arabia is produced at a low cost of just $۲ or $۳ per barrel, ” he explained.
Oil price experiences small fluctuations despite fundamental oil market changes
Fereydoun Barkeshli believes that the international oil market has undergone fundamental changes since ۲۰۰۸, however the world oil price has remained with small fluctuations since summer ۲۰۱۲.
“Oil price fluctuations were in the vicinity of plus / minus ۵ percent for the well over three years until recently, ” the expert told Trend.
“It was interesting to note that the world oil market did not even respond seriously towards geopolitical developments in such sensitive areas as the Middle East and North Africa, ” Barkeshli added.
“As far as the market fundamentals are concerned about the imposition of sanction against Russian oil was crucial in letting price fall, ” he underlined.
The expert said that Russia had to embark upon concessions in order to secure its market share and revenue.
Barkeshli predicts that such discount practices by a country that exports huge volumes of crude and products have a devastating impact on the market.
“Saudi Arabia and other Gulf countries had to follow the trend in order not to lose their market shares, ” he said.