All oil indicators were trending towards better barrel prices this summer, aiming to surpass $90. This was based on the anticipated increase in global demand for gasoline and diesel, as well as local demand for gas to meet electricity consumption amidst rising loads during the summer in the Gulf states, where temperatures have reached 50 degrees and higher at times. However, the barrel price has dropped below $80, currently at $77, raising questions about the reasons behind this decline despite the flexible commitment of OPEC+ countries to cut production according to their oil quotas.
These countries produced approximately 26.7 million barrels daily in July, with about a 100,000 barrel increase compared to June. Following the OPEC+ meeting last Thursday, which ended without any changes in policy and agreed to lift voluntary commitments in October, the door was opened for unannounced production increases, contributing to the decrease in oil prices.
Moreover, the weak Chinese economy seeking an exit, along with the U.S. economy not achieving expected employment rates, has collectively impacted the decline in oil prices, reflecting an actual rollback in global economic growth and contraction.
In addition, major oil companies constantly strive for better outcomes, primarily dealing with oil prices and maintaining annual financial returns for shareholders, regardless of oil prices. These companies aim to achieve the same financial returns even when the barrel price falls between $40 and $50, which poses a significant challenge for companies like Shell, which has decided to discuss relocating its offices and operations from the Netherlands to Houston, USA, in order to strategize for future sustainability while facing lower performance and profits compared to American companies.
It is challenging to find our national oil companies positively discussing all scenarios since they are generating profits and financial returns for the state, yet they always face the issue of the state’s general budget and its annual increases beyond their capacities. This means they cannot achieve an average price above $90 per barrel to meet budgetary burdens since they depend on every dollar from oil. Given that the state relies on over 98% of its revenues from oil, it continues to search for alternative non-oil revenue sources, while the price of oil is in the hands of global economics. The crucial factor is the economic recovery in both China and the United States to influence oil prices.
Currently, with oil prices below $80, there will be a confirmed financial deficit for Kuwait’s budget this year. Therefore, is there a solution to the decline in oil prices? And can OPEC+ achieve a suitable equilibrium price? With every drop in oil prices, the organization resorts to further production cuts so that external companies and countries can benefit from greater profits and financial returns, given they have other financial resources. At the same time, the oil organization has lost quantities and oil markets.
Thus, oil-producing countries need to reduce and manage their oil sectors professionally, similar to how major oil companies operate, without interference from various ministries. This constitutes the disagreement, as well as the issue of early retirement, which contributes to competitiveness and the loss of required national expertise.