Price fall riddle: Who’s to blame?

TEHRAN Sept. 09 (Shana) — Some OPEC producers think they have to stick to their production levels even if crude oil is priced at only one dollar per barrel. But, maybe they don’t have to go that fast.

A glance at oil price fluctuations from August 2014 to August 2015 for Brent crude oil shows that the prices have never kept much long below $48.

During the mentioned period, prices rebounded three times when they crossed the $48 breakeven price.

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Albeit, the prices have never returned to their levels before August 2014 to nearly $100/b which is mostly attributed to fundamental market determiners, i.e. supply and demand.

Figures released by the International Energy Agency (IEA) indicate that crude oil oversupply has been the major cause of the price slump since June 2014.

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Oversupply has reached 2mb in September 2015 from 1mb in September 2014 which has led to the 60% drop in the global prices for the commodity.

Now that some OPEC members like Saudi Arabia export unprecedented crude oil amounts to more than 1.5 more than the market need, disregarding OPEC’s agreed 30mb/d ceiling, the prices keep maintaining at the $48 level and even if they fall any lower, the fall may not be much lasting.

This means that costly oil output by American frackers and other unconventional producers have to stay out of the market when prices go any lower than 50 dollars and once prices cross the breakeven level ($48), they flood the market, add to the oil supply glut, lower the prices, become uneconomical and again have to stay out of the market.

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In effect, if shale oil supplies caused prices to fall from above 100 dollars in 2014 to below that level, Saudi Arabia and other over-suppliers must be blamed for the fall of prices to below 50 dollars in 2015.

On the other hand, Iranian Petroleum Minister Bijan Zangeneh has laid much emphasis on the country’s return to the market once western sanctions are removed on Tehran for its nuclear program.

Iran has promised to add to its supply more than one million barrels a day shortly after the international restrictions on the country are lifted.
This would bring oil market oversupply to over 3.5 million barrels a day.

If OPEC members fail to consider their export ceiling of 30mb/d, the price of both unconventional and conventional oil supplies will drop dramatically, putting unprecedented pressure on major suppliers whose economies are deeply dependent on petrodollars.

This article was written by Peyman Jonoubi for SHANA on Sep. 10, 2015.