Oil’s Last Hurrah?: Why the Gulf May Never See $100 a Barrel Oil Again

When the Saudis upped their output to try to save the Republicans in Washington last Summer, few thought that  it would be the beginning of the same time of glut that hit in the early 1990’s when gasoline dropped to under $1.00 per gallon in the U.S.  However, that’s exactly where things are headed now.  It’s another perfect economic storm for the oil producers.  Demand crashed just as the KSA was trying to leverage political power in Washington D.C. through oil.  This was supposed to keep the economy on-track until after the November elections.  However, the wheels came off the economy a few months earlier than expected (in October).  This left OPEC in a very bad position.

Now, the price has fallen so much that there is almost no safety net.  Virtually every OPEC member (with the exception of Abu Dhabi @ $25) are at or below break-even pricing for oil.  This is going to put huge pressure on the Gulf economies going forward.

The bigger question is what happens to price now?  The situation is very similar to the crash of the early 1990’s.  Unless OPEC gets serious about controlling supply, I may take 5-10yrs to get the price where the Gulf economies want it. However, the push to keep some revenues coming in will keep the oil flowing.  OPEC’s problems will be much bigger over this price breathing space.  The world is gearing up to give up oil.  Alternative vehicles of many different types will come online over the next few years.  This will keep a permanent downward pressure on oil prices from about 5 years out when the manufacture and sales of such vehicles reach critical mass.

In the near term, oil will see $20 a barrel long before it reaches $100 again.  Peak oil theory is dead.  The new theory is ‘dead oil’.  Within 20 years the oil market will be relatively insignificant on the global stage. And, unless the Gulf can reposition itself economically there will not be a positive future going forward.

Here is the latest article on oil price from the Gulf News:

Oil dips to four-year low

http://archive.gulfnews.com/articles/08/12/05/10264892.html

12/04/2008 11:35 PM | By Himendra Mohan Kumar and Shakir Husain Staff Reporters

Abu Dhabi/Dubai: The price of global benchmark crude on Gulf News fell to below $46 (Dh168.9) per barrel to its lowest in nearly four years, causing more concern among major producers about the commodity’s sliding value.

Leading members of the Organisation of Petroleum Exporting Countries (Opec) with huge infrastructure projects to fund are worried about their shrinking export revenues.

With the prospects of global economic growth weakening, oil has shed about two-thirds of its value since July when it traded more than $147 per barrel.

In yesterday’s early trading, US light crude for January delivery was down 57 cents to $46.22 a barrel. It earlier touched a low of $45.30, the lowest since February 9, 2005. London Brent crude was down 67 cents at $44.77.

Yesterday Iran said $75 a barrel was a fair price, echoing earlier comments by Saudi Arabia’s King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi.

Iran also believes that the market is oversupplied and producers should cut output to balance the fundamentals of supply and demand.

“It is obvious that the market is oversupplied,” Reuters quoted Iran’s Opec governor Mohammad Ali Khatibi as saying.

Opec will announce a production cut at its meeting in Algeria later this month, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah told reporters in Dubai on Wed-nesday.

Industry analysts said the fall in oil price could harm the Gulf economies, but for now these countries are cushioned against lower crude prices because of the financial reserves they have accumulated from the previous high revenues.

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Five laws i’d like to see implemented in Dubai

Creating a Nation-wide credit system:
Banks are making a killing while many of the country’s young, ambitious national and expatriate workers are getting caught in a thorny credit trap. And most are either in thrown in jail or default and runaway from the country.

Thanks to poor governance, banks are virtually giving away credit cards, personal loans, mortgages… and every other form of “financial services”, to anyone who walks through the doors of banks, and -mind you- without any proper historical credit analysis or rating to the applicant. It reached a point where banks hire housewives and door-to-door credit card sales men. This plain wrong.

Making it Illegal to Disconnect Power or Water off ANY Residential Facility:
This is the case in many countries in the world. But sadly, not here. Living without water or electricity in a county like the UAE is, without a question, fatal. And I am not being over dramatic. Tempreture here often crosses the 50C mark during the summer. This the temperature internationally recognized as fatal to human beings. There are better ways for water and electricity agencies to coerce their customers to pay up. For example, Freezing bank accounts or imposing travel bans.

But not leaving women and children in the scorching heat of the summer without water or air conditioning. Its not only inhumane, its disgraceful.

Government Employees Working for Private Sector:
This is quite common in several GCC states. Especially in KSA and Saudi. Government employees are not permitted to run any private business. No matter what happens, you will always ALWAYS have conflict of interest. Today’s Gulf News headline story is a pure example.

Readers: I would really like your thoughts on this one.

Imposing an Emirate-wide Quiet Hours:
Living almost anywhere in Dubai today is becoming a real annoyance. Dubai Municipality is giving away 24hrs construction permissions to contractors, right, left and centre, with out any regulation to the level of noise emitted by these construction company nor consideration to the noise pollution and what it is doing to thousands of families across the emirate.
Don’t believe me, pass by next to my house anytime at night and see for yourself.

Making it illegal not to fully stop at Stop sign or at pedestrian zebra lines:
I was very impressed how in the US, they take these 2 regulations extremely seriously. If you do not stop at a STOP sign, or at a pedestrian crossing, you simply go to jail.
When you think about it, it does, significantly help reduce accidents. Stopping so frequently, especially when in residential areas, will result with fewer, almost no accidents.
We seriously need that here in Dubai. Just read the paper everyday.

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