Friday 05 / July / 2024
Muscat: Oman’s crude oil prices sharply declined by more than 30 per cent from $49 per barrel on Friday to $33.30 dollar per barrel, a decrease of $15.70 on Monday.
The prices also decreased by more than quarter of the value on April delivery, according to the latest data form Dubai Mercantile Exchange (DME).
“The decrease in oil prices have a very big impact, especially in countries that depend on oil revenues, and steps must be taken to reduce these impact,” Abdulmalik Al Hinai, Adviser at Ministry of Finance said.
“Oil prices are more subject to political fluctuations than to demand and supply. Of course, there is a decrease in demand, but it appears that this steep fall is because of Russia’s refusal to cooperate with Opec to reduce production, he added.
Al Hinai further said: “Even though oil prices are falling, I believe that the issue has a political aspect will be resolved soon and prices may rise to a higher level than they are now. But it may take a long time until they return to the previous level that exceeded $60 per barrel.”
According to DME data this is among the biggest overnight changes in oil prices, and comes after the price had shown slight decline over the last few days, with the price of Oman crude being $49 on March 6, $51.07 on March 5, and $51.32 on March 4. It had, however, risen by roughly one and a quarter dollars on March 3 ($52.15 a barrel) and March 2 ($50.95), following days of continuous decline.
The Oman oil futures contract, in addition to being the pricing mechanism for the Sultanate of Oman, is also used by a number of other Gulf Cooperation Council (GCC) countries, including Kuwait, Bahrain, Saudi Arabia and the Emirate of Dubai.
“The ongoing disagreements between Russia and Saudi Arabia with regards to decreasing the production limits have led to this. Russia has refused to further cut production to ensure the oil price would remain high even as demand has been affected by the coronavirus,” explained an official at a leading oil and gas company in Muscat.
“It had already cut production since 2017 to ensure prices remained high during the economic downturn. The Saudis have therefore cut their selling price of oil so that they get the bigger share of the market.” he added.
“The world cannot withstand this sharp fall and eventually I think it will work out because the world cannot sustain this level of drop. There are speculations over the price of oil per barrel reaching even $20 or $10, but that will not happen. This sudden drop is illogical, and I feel that the United States will soon intervene to correct this,” he said.
“They will need to, because supplying oil at such low prices will not be good for any oil-exporting country and such a steep fall in oil prices is illogical. In the short term, the Russians can pump up to 17 or 18 million barrels a day and the Americans and Saudis can extract up to 12 million, but to extract at low prices would likely not be good for them in the long run,” he said.
Oil prices had already been low in 2020 owing to the impact on the global economy by the novel coronavirus and the official said that producing oil at such a low rate for sale is simply unsustainable.
“From the economic perspective, 2020 from a global standpoint is off to a bad start,” he explained. “First, you had certain political differences, and then the coronavirus impacted the economy. Because industries were being shut temporarily and that led to less demand for oil in factories and industries. Like in any other industry, it is all to do with supply and demand. Right now, the supply of oil is far higher than the demand and this recent development has only further increased the supply.”
