The Future of Oil Prices By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

January 7, 2015 | Posted by bobbysrinivasan << back to blog

Ali al Naimi the Saudi oil minister on Dec 24, 2014 made a statement and I quote “OPEC will not cut production even if the oil falls to $20 a barrel ‘’. This is in fact a dramatic shift in policy and could have a far reaching implication .In the earlier instance, OPEC would announce a production cut every time the price fell to a level that they didn’t like and Saudi Arabia always stayed as a swing producer.

The oil minister of Saudi Arabia was interviewed for the Middle East economic survey .These are his statements verbatim .Here it goes in point form.

It is not in the interest of OPEC producers to cut their production, whatever the price is.
Whether it goes down to $20,$40,$50,$60 is irrelevant.
The world may never see the $100 a barrel again
If the kingdom (Saudi Arabia) reduced production the prices will go up and then the Russians the Brazilians, US shale oil producers will take our market share.

The Saudi concern seems to be not the price but the market share. He is right. The US shale oil production has reached 10 million barrel a day. Recently US even exported oil from Texas, this has not happened in the last 40 years. The country which is really hit hard is Russia and Venezuela. Their economic planning for the future has completely gone to disarray .The biggest winner of course is China. The economists expect that the Chines GDP would get boosted by up to 0.7 percent in 2015 and 0.9 percent in 2016.

The IMF predicts that a prolonged price slump should boost global growth up 0.7 percent in 2015 and 0.8 percent in 2016.

In Russia, the former finance minister MR. Alexei Kudrin predicts that the real income of citizens would fall by 2 to 5 percent. He said and I quote” To day I can say that we have entered or currently entering a full blown economic crisis , next year we will feel it in full force.

We in India should take advantage of the Russian predicament .We should try to enter long term contract on oil and natural gas supply in exchange for agriculture products such as wheat and rice. We can either enter into a barter system or make them accept rupee payment .For us citizens, we will wait and see how it will pan out.

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