Oil experts: Gulf countries on the brink of disaster due to the current price war

Al-Jazeera Net - Kuwait

Three oil experts in Kuwait have warned of what they called the "black scenario" of the oil war now taking place between Russia and Saudi Arabia, and is likely to continue during the coming period, unless the United States intervenes to end it.

Experts told Al-Jazeera Net that the continuation of the current situation and the repercussions associated with the spread of the Corona virus will lead us to a catastrophe in which the price of a barrel of oil will reach below ten dollars a barrel, which means the Gulf countries will suffer from "want", stressing that no one imagined reaching the price war The circle now.

Experts went on to say that the pessimistic view of the outcome of the trade war between America and China was standing a year ago from the point where the price of a barrel did not rise above sixty dollars, and with the start of the spread of Corona virus in China - the largest source of consumer products globally, and the second largest oil importer - was Expectations are directed towards the price not falling below forty dollars, based on the possibility of compensating the decrease in Chinese consumption through other markets, as well as the Organization of Petroleum Exporting Countries (OPEC) proceeding with the policy of reducing production.

Russia recently refused to move forward in the policy of reducing production pursued by OPEC and the Group of Independent States since 2017, an agreement that was renewed in 2018 and 2019, before facing failure in March, for oil prices to fall from $ 45 a barrel to less than thirty dollars Currently.

During the last meeting, Russia refused to go ahead with the commitment of the agreement, as it was losing market shares for US shale oil, while Saudi Arabia wanted to continue this policy, allowing to limit the supply and maintain price cohesion, before moving to an unprecedented policy, which is unconditional production by agreements. OPEC.

Saudi Arabia raises production
Saudi Arabia announced immediately to raise its production to 12.2 million barrels currently, with its intention to reach its daily production to 13 million barrels by next May, and also reduced the discount rates on its oil, by up to ten dollars per barrel, and other OPEC countries will have - like Kuwait and the UAE - raising production to maintain market shares, as well as announcing lowering the discount rates, so that everyone lives in a price war that takes place in a non-competitive environment for low oil demand, which means that conditions are on the way to worsening further.

The academician and economist, Talal Al-Bathali, believes that the Saudi approach is very dangerous to oil prices, as it could plunge it to between 15 and 20 dollars during the next three months, which is a more optimistic scenario compared to other expectations that go to say that oil will be below ten dollars per barrel During 2020.

Al-Bathali notes - in an interview with Al-Jazeera Net - that the American oil reserves increased by two million barrels since the beginning of the crisis, and with Saudi Arabia's tendency to produce 13 million barrels per day within two months, Kuwait is now required to stop the existing obligation with OPEC regarding its production share and compete with other countries to provide Discount offers on its oil competitively, as well as adopting the floating oil policy by sending it to where the demand is located away from the contract system.

Al-Bathali believes that the Gulf countries can take advantage of the current crisis to establish a Gulf OPEC organization, so that its decision is far from other countries such as Russia and Mexico, and in this case it will control about 53% of the world's reserves and about 26% of production, a percentage that allows them to control absolutely On the prices.

Oil Strategist Abdel Hamid Al-Awadi asserts that the significant drop in oil prices, which constitutes 65% of the volume of global trade, was behind the decline in the prices of many derivatives and global economic commodities, which explains the sharp decline in many global exchanges, and all producers will suffer a loss from the current war , Including Russia and America, given that the price of $ 25 a barrel may not cover the cost of production for some producers around the world.

Budgets are troubled
Al-Awadi adds - to Al-Jazeera Net - that, given the share of the Gulf countries - which represents 53% of OPEC production - the decline in prices will negatively affect them in general, because their budgets depend on oil sales at rates ranging between 85 and 95%.

It sets an example in Kuwait, as the budget for 2020-2021, which will start work in next April, is built on the basis of an estimated price of $ 55 per barrel, and that budget generates state revenues of 16.5 billion dinars (Kuwait produces 2.7 million barrels per day) with an estimated deficit in the budget. Up to nine billion Kuwaiti dinars (the dinar is equivalent to 3.2 US dollars).

When calculating revenue at a price of $ 25 a barrel, and assuming the continuation of current prices during the new fiscal year, the return will be in the range of 7.5 billion dinars, achieving a 55% decrease compared to the initial estimates, and the returns will cover only about 45% of the estimated budget, and the estimated total deficit will reach 18 billion dinars.

The exchange rate of the US dollar rose against the Kuwaiti dinar as a result of the crisis. While the estimated price in the Kuwaiti budget was 0.302 fils per dollar, the exchange rate has now reached 0.310 fils, i.e. a loss of eight fils per dollar.

Al-Awadi says that Kuwait is required, like other Gulf countries, to take preventive measures, foremost of which is reconsidering huge capital projects, delaying some of them, and adopting a policy of rationalizing smart spending so that it does not have to withdraw from the state's general reserves.

The expert in the analysis of oil markets, Kamel Al-Harami - Al-Jazeera Net - confirms that the biggest and biggest catastrophe will be financial, because the balanced rate of the oil price to meet public budgets within most of the OPEC countries between 90 and 95 dollars. For example, in Kuwait it is $ 83, Saudi Arabia is $ 95, and Iraq is about $ 120, and it jumps in Iran and Nigeria to more than $ 150, which means that all of these countries will have to withdraw from the general reserve or borrow to make up for this difference.

He goes on to say that Russia relies on oil to cover 40% of its budget, and the average equilibrium for it is 42 dollars per barrel, and it can cope. The Gulf states, likewise, shale oil will not be harmed because the US government supports its manufacturers and wants to protect it.

Al-Harami believes that the black scenario of what we are currently seeing is the price of a barrel reaching ten dollars, because this situation means that the Gulf countries will reach "destitution", stressing that we need a global agreement to end the crisis.