Crude oil supply in the market has reached 96.9 million barrels per day during the past three months while demand, according to the International Energy Agency estimations, stands at only 94.7mb/d, marking a 2.2mb/d oversupply in the market.
Besides, members of the Organization of Petroleum Exporting Countries (OPEC) are estimated to supply 32.3mb/d during Q1 of 2016, while some members are defying the 30mb/d ceiling the members agreed upon by all members in 2011, in a move to disturb the market. Besides, countries like Saudi Arabia are least potent to retreat to open room in the market for Iran's promised 1.5mb/d output boost.
Disturbance of the market by some OPEC members is while OPEC's originating targets include cooperation and integration of oil policies of the member countries and determining the best way to ensure their collective and individual interests, designing methods to guarantee price stability in oil market in order to prevent destructive and unnecessary fluctuations; paying special attention to oil producing countries and ensuring sustainable revenues for them; supplying crude oil for consuming countries in an efficient, cost effective and permanent manner; and proper and fair outcome for those who invest in the petroleum industry.
Saudi Arabia, which has been leading the organization for the past few years, with support from certain member states, favors OPEC's inability to adjust the market.
The disturbances caused by Saudi Arabia in the global oil market have put so much pressure on most OPEC members whose economies are deeply dependent on their oil income, by diminishing their oil revenues.
Among the members, Iraq (98.83%), Venezuela (96.42%), Libya (98.09%), Kuwait (93.63%), Nigeria (91.68 percent), Angola (90.14 percent), Saudi Arabia (76.47%) and Algeria (67.68 percent) are most dependent on oil exports.
According to OPEC annual report, oil exports by member countries in 2015 fell to 964.6 billion dollars, $135.4 billion lower than 2014. The price of oil in 2014 fell from $96/b in January to $60 in December and the average prices fell from $105.87 in 2014 to $96.29 in 2015.
Oil prices kept edging down in January 2016 to below $26/b and the market is still infested by 2 million b/d of oversupply.
Considering the daily supply of 22.6 million barrels of crude oil and gas condensates by OPEC member states in 2017, which made up nearly 56.5% of the global oil supplies, and provided that the prices remain in the range of $26/b, revenues of OPEC members from oil exports will stand at about 190 billion dollars in 2016 given the discounts they generously offer to their customers.
This means they will only earn 20% of what they could earn in 2015 from their oil sales; in other words, countries like Saudi Arabia, which rely on petrodollars by 77%, will swiftly begin to witness the destructive results of their income cuts.
There may be observers who say Riyadh's 660 billion foreign exchange reserves can help the country survive the current circumstances for the next 2 to 5 years; but the steep fall of the country's foreign exchange income which depends by 90% on oil sales, will shrivel the Saudi economy with regard to $279b government expenses annually of which only 37.4% is supplied by tax revenues. This will lower the country's GDP and lower their purchasing ability and eventually add fuel for popular protests.
Now, the Saudi government's decision to cede Aramco's stocks can be viewed as a beginning to a process initiated by the House of Saudi to lower oil prices in the market which will end by protestors who will swarm the streets of Madina and other Saudi cities. The same will be the fate of other countries whose economies are highly dependent on oil revenues.
Importantly, recent fluctuations in global economy and the stock market are happening while in 2015 only less than 270 billion dollars of crude oil exporters including OPEC and non-OPEC suppliers lowered. While the continuation of below-$30 oil in 2016 will lead to 1600 billion dollars of losses for oil exporters.
This $1600b loss in global trade will only become more tangible when one realized that the total trade in the world stood at $19,000b in 2015. Therefore, clearly, oil prices below 30 dollars per barrel can bring more than 8% drop in global trade.
In fact, the oil price slump will not bother OPEC members only. A recent report by Bloomberg shows that the global economy is falling and the stocks of major international firms are depreciating mainly because of the falling oil prices and oversupply of crude.
According to Bloomberg, the world’s 400 richest people lost almost $194 billion this week as world stock markets began the year with a shudder on poor economic data in China and falling oil prices.
Amazon.com founder Jeff Bezos, the best-performing billionaire in 2015, lost the most, his fortune dropping $5.9 billion this week as shares of the world’s largest online retailer fell more than 10 percent. The world’s richest person, Bill Gates, fell $4.5 billion to $79.2 billion, while Spain’s Amancio Ortega, the second-richest, dropped $3.4 billion to $69.5 billion.
Therefore, unlike Aramco's assertions, lowering production costs and boosting sales will not help Saudi Arabia and its allies solve their problems. The market disturbers who have reached out for Iran's market must honor their commitments towards OPEC and its members.
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