The US and Saudi Arabia will never accept that they are entwined in an apparent oil war. While Saudi Arabia keeps on producing oil at record level to maintain its share in the global markets, its earnings are plunging. Despite decline in price the shale oil production has not seen any significant reduction, although number of active rigs have declined to blow 600 from above 1,600.
On the face it appears that the US and Saudi Arabia are fighting ‘price war’, the perception is negated because both the countries connived to take the price above USS147/barrel. They are still supporting each other to punish Russia and Iran.
Oil from many countries is being pilfered by ISIS, which is being bought by those who claim to be fighting a war with the most brutal outfit, drawing strength from selling pilfered oil. In a way Kurds also don’t have the ownership of oil which they are exporting from Iraq.
Countries called P5+1 agreed with Iran to remove sanctions, but the restrictions still continue. Iran has borne the brunt most, because its oil related revenue has nearly halved and it is not yet clear when will it get the chance to boost oil exports.
Initially, Saudi Arabia was not willing to curtail daily production by OPEC members, but now it is talking about containing production provided Russia and other non-OPEC members also agree to curtail output.
With winter approaching fast, consumption of heating oil and gas is expected to rise but stockpiles are still hovering at record levels.
It may be true that all eyed are fixed on 4th December meeting of oil cartel but little is expected to change. The three giants, the US, Saudi Arabia and Russia are not likely to change their stance.
The credible signs of improvement in the US economy are missing, Chinese economy is still faltering and IMF has already curtailed rate of global economic growth.
One point is clear that oil demand is not likely to grow significantly in the near future. Therefore, the only option available to oil producing countries is to curtail production. Many analysts are of the view that December 4 will come and go but the glut will continue.
Let no one forget that the biggest beneficiary of declining oil prices are OECD, are they ready to take a hit? The reply is a loud NO!