An oversaturated market and falling prices: Large producers are not willing to cut the output

The market is flooded with oil and quotations are falling. However, no one is willing to cut production, and on the contrary, even higher supplies are being announced. The last ones to enter the list of exporters will be the Americans and the Iranians.

The US House of Representatives could vote in September a bill lifting the ban on crude oil export and the Senate is to decide on the measure early next year, according to the Wall Street Journal. It is quite likely that the abrogation of the ban on oil export, a ban operating since 1973, to be included in a draft bill by which several pieces of legislation in the energy field will be amended or in a draft bill on subsidies to support renewable energy, so that the chances for a positive vote would increase, with bipartisan support, the journalists of the Wall Street Journal say. By this measure, the upholders of export liberalization say domestic production will be encouraged, laying further pressure on world quotations of oil. This cheapening of oil would reduce the international prices of petrol and diesel. On the other hand, one must not forget that the US oil imports have decreased due to the higher output of shale oil. Also, the hedge funds expect a further decrease in oil prices in the coming weeks and have developed unusually high short trading positions, based on the fact that oil prices have reached the lowest levels since 2009, Saxo Bank analysts say.

OPEC decided in June, during the meeting organized in Vienna, to keep oil production unchanged for another six months, ignoring the warnings on a further decline in prices, given that some Member States, such as Iran, want to increase their exports. At the end of the summit which took place without disagreements, the Saudi Minister of oil, Ali al-Naimi, said OPEC confirmed the current output ceiling of 30 million barrels of oil per day, renewing support for the shock treatment of the market announced late last year. Saudi Arabia, the largest oil supplier in the world, announced last year that it will not cut production to keep prices high. OPEC representatives will meet again on December 4, however an emergency meeting might take place sooner, after several Member States have requested it in an attempt to stop the fall of quotations.

Iran has announced it plans to return on the world oil market at full capacity, as soon as international sanctions are lifted, following the agreement on its nuclear program, according to the Iranian deputy minister of oil, quoted by the international press. After more than a decade of negotiations, Iran and the ‘5 plus 1’ group (the US, Russia, China, the UK, France and Germany) have reached a comprehensive agreement that brings an end to the Western concerns on Tehran’s controversial nuclear program. Following the signing of this agreement, a number of sanctions on Iran’s economy will be lifted. The entry of Iranian oil on the global market, a country whose oil reserves rank fourth worldwide, an extra pressure on quotations will be felt.

The dramatic fall of oil prices led to the postponement and even to the cancellation of some large investments. Experts in the field estimate that the large oil companies have revised plans for the near future by cancelling investments of USD 200 billion for various exploration projects and for the search for new deposits. Particularly affected by the new context are the small oil companies, working as subcontractors for large corporations in the field. Many of these companies have witnessed their contracts being terminated or, at best, their financial terms were pulled down.

Under these circumstances, the forecast remains quite grim.

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