Who benefits from low oil prices?

Issa Chomani

By Issa Chomani:

Over six months, oil prices have dramatically reduced by half and recorded their lowest levels. This comes after nearly five years of stability. The prices are not expected to bounce back anytime soon. In June the Brent crude price was around $115 a barrel; now is seen to have stabilized at about $60 per barrel.

The slowdown in the world economy and lack of consensus among OPEC members have both caused this big drop. The slowdown in the world economy is led by China, but reinforced by the sluggishness of the Eurozone. The second factor seems to be more political and Saudi Arabia, as the world’s largest oil producer, plays a key role in maintaining its market share. It appears that Saudi Arabia wants low oil prices to collapse its traditional rival in the area, Iran, which is more vulnerable financially.

Saudi’s oil minister, Ali al-Naimi, in a conference said that Saudi Arabia and Organization of the Petroleum Exporting Countries (OPEC) members will not decrease the exporting ratio even if the price falls to 20 dollars for one barrel. Naimi praised and defended OPEC’s decision to reduce the oil price.

The drop in oil prices will have obvious consequences on the oil producer countries, especially Russia and Iran which have faced severe sanctions.  While big oil-consuming countries like the United States and China are getting benefits from buying oil at the lowest prices, it is a different story for countries like Russia, Venezuela and Iran. Oil revenue is the biggest source to sustain their economies and to balance their fiscal budgets.

OPEC members, which produce about a third of the world’s crude oil, about 30 million barrels a day, of which Saudi Arabia pumps 9.6 million, met last month discuss the oil prices drop. It was believed that, following their meeting, oil prices would go back up due to their agreeing to lower production, but this did not happen. Analysts now say this is part of a long-term strategy by OPEC’s most dominant member, Saudi Arabia, to keep its market share and push out competitors like Russia, Venezuela and Iran.

Of the OPEC members, Russia is the main loser and it has already lost between $20-$40bn from its budget due to the dip in oil prices. Russia is the second largest oil producer after Saudi Arabia and it wants oil prices to go up but the European Union sanctions over its intervention in Ukraine are serving to abort its demand.

Analysts expect that oil prices will stay low if export supply continues to increase. In an effort towards this, US wells are expected to continue to produce several hundred thousand more barrels a day next year. US oil production grew last week from 9.12 million barrels a day to 9.14 million barrels; this has a significant role in maintaining the prices slump.

Eric Lee, the Citigroup Energy analyst, said that exporting more oil from the United States, Libya and Kurdistan, or potentially Iraq, will keep oil prices low. He also said: Russian output could go either way next year, depending on how much the financial crunch is hurting production.

 Issa Chomani is a freelance journalist writing on the political affairs of the Kurdistan Regional Government and covering Kurdish politics for Kurdish media outlets

3 Responses to Who benefits from low oil prices?
  1. Ali
    December 26, 2014 | 14:10

    I see the situation more political that US wants to hurt Russia and some its components

  2. Hiwa
    December 26, 2014 | 14:19

    well done, the fall in oil prices will leave bad influence on Iran

  3. Zaniar
    December 26, 2014 | 23:23

    In order of following importance : independence, terrorism, corruption, South should move. Time & Patience.

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