Danger Ahead Concerning Oil Prices: Demand for oil could fall by 45%

Demand for oil could fall by 45%, says Saudi official

http://archive.gulfnews.com/articles/09/01/09/10273747.html

01/09/2009 12:18 AM | WAM

Dubai: Oil demand could fall 45 per cent due to the global financial crisis, but investments should be increased to ensure supplies are maintained, a senior Saudi government official said in remarks published on Thursday.

Majid Al Munif, an adviser to Saudi Arabia’s oil minister, said the global financial crisis may cut oil demand by 23 per cent to 45 per cent, the pan-Arab daily Al Hayat reported, citing remarks made at a conference on Wednesday. World oil demand fell by 50,000 barrels per day in 2008, and is predicted to fall 450,000 bpd this year, the United States Energy Information Administration said in a report in December.

Cooling demand was led by a 1.2 million bpd contraction in top consumer the United States in 2008, and another 200,000 bpd drop is likely this year. The last time world petroleum demand fell was in 1983, part of four years of straight declines in oil consumption that began in 1980, the agency said.

The weak economy and lower oil demand has already caused US crude oil prices to sink more than $100 [Dh367] from a record $147 a barrel in July – a slump that has forced Opec to take 4.2 million bpd of oil off the market in an attempt to reduce bulging global crude inventories and stabilise oil prices…

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Moody’s Says Abu Dhabi Can Survive the Oil Price Plunge

Abu Dhabi’s public finances are very robust and can easily withstand the recent plunge in international oil prices, said Moody’s Investors Service in its new credit report. Global oil prices plunged to its lowest in four years to $36 per barrel on Friday despite a steep output cut by Opec as global economic meltdown deepened.

“We estimate that Abu Dhabi’s fiscal break even is around $30 per barrel, considerably below today’s oil price,” said Tristan Cooper, a Moody’s Vice-President/Senior Analyst and author of the report.

“Even if oil prices were to fall below $30 per barrel, the Abu Dhabi government could afford to run sizeable fiscal deficits for many years given its large stock of financial assets,” Cooper said in his credit report. Even under a plausible worst-case scenario, the potential liabilities of the Abu Dhabi government could be amply covered by its assets, he added…SOURCE

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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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