Oil prices are falling due to oversupply

Oil production in the member states of OPEC decreased by 0.44% in August – down to 31.26 million barrels per day. The biggest fall was registered in Saudi Arabia, where oil production was reduced by 0.47%. Angola, Iraq, Libya and Qatar also decreased their oil production. Experts believe that OPEC should reduce oil production radically.

Alexander Kudrin, head of Strategic Studies at the Energy Analytical Centre under the Government of the Russian Federation, says that financial and geopolitical factors are playing a significant role in the oil market. “But ultimately, supply and demand have a decisive influence on the market. The dynamics of prices show that when the markets record an excess of oil, this is reflected in the dynamics of stocks. And when the stocks are rising, then the price decreases,” Kudrin says.

There is indeed a considerable excess of oil overproduction on the market today. “Unfortunately, we do not see any constructive policy from the OPEC side that would allow, at least, to talk about limiting OPEC production to the level of 30 million barrels a day, which they have set for themselves.

If the price drops, say, to $40 per barrel, this threatens a serious decline in production. Analysts point out that $40 per barrel is the line when production will decline considerably, and it will be a start for closing and bankruptcy of enterprises. Just because it is below the average variable cost of production. Therefore, $40 per barrel seems to be a strong frontier. $60 per barrel is the price level at which drilling in the United States stabilizes. We also have examined this question. Therefore, $60 per barrel is a price comfortable enough for investors in the medium term,” Kudrin thinks.

According to him, talking about growth rates in excess of this level is possible only if the market situation were to be fundamentally changed. “So far, there are no preconditions for the fact that stocks will be cleared in the next year or two, especially if Iran’s oil appears on the market. A large role in clearing the reserves belongs to OPEC. It is necessary to understand whether the OPEC countries can find some decision to absorb the Iranian oil that will be available in the quantities in which it was available before. What we can expect when the Iranian oil appears is not quite clear. It is likely that the stocks will continue to be replenished, and the pressure on oil prices will continue.”