Global oil market faces glut, prices remain weak

Arab Times

6 hours ago

The current glut in the oil market is the reason behind the decline in oil prices to below $70 per barrel, with prices currently hovering around $68 and no signs of recovery yet. OPEC+ continues to maintain maximum output, which is contributing to the ongoing oversupply. There appears to be a hidden war with non-OPEC producers in an attempt to stabilize prices, but so far, this strategy has had little effect. The problem continues and is expected to continue for the foreseeable future. As a result, the oil market seems to be left to adjust on its own, with prices driven by market forces regardless of the outcome. Is this a deliberate move by OPEC+ to keep oil prices within a 'comfort zone' for the benefit of both buyers and OPEC. With OPEC+ increasingly limited in its ability to influence prices, traditional measures such as production cuts and quota distribution are no longer effective. While OPEC appears to be adapting to lower oil prices for now, it may be reluctant to implement further production cuts that could benefit non-OPEC producers at the expense of its own market share.
However, the ongoing weakness in oil prices is forcing OPEC+ members to borrow from international banks to meet annual budget requirements. In Kuwait's case, the fiscal year that ended on March 31 saw a budget deficit of approximately KD 1.3 billion, which is significantly lower than the earlier projected deficit of KD 3-4 billion. This is relatively good news for the country, as it reduces the need for external borrowing or the sale of overseas assets to cover the shortfall. It may now be the right time to reassess our fiscal policy and focus on reducing unnecessary expenditures, particularly those that benefit some individuals rather than the state. It is time to cut down on unwarranted expenses. The currently weak crude oil prices is bad news for oil-producing countries, as it leads to larger deficits in their annual budgets. However, in the long term, lower prices are expected to stimulate global demand for oil.
That said, this is not yet the case. Increased U.S. tariffs on imports from most countries trading with it are fueling infl ation and dampening overall demand, including demand for services tied to energy consumption, such as crude oil. Global oil demand is softening, with the U.S. seeing a decline in crude imports, now averaging around six million barrels per day. Domestic production stands at 13.3 million barrels per day, down by roughly 200,000 barrels per day. This imbalance is contributing to further drops in oil prices, with U.S. crude trading below $67 per barrel. On the positive side, lower fuel prices are making travel and driving more affordable, especially during the winter season, which could lead to a seasonal boost in demand. Today's oil market remains uncertain and offers little indication of a positive turnaround. With weak global demand and oil prices falling below $70 per barrel, and potentially declining further, the outlook remains gloomy. The recent increase in U.S. tariffs on its close trading partners is adding to global inflationary pressures. In response, those partners may impose retaliatory tariffs, further intensifying inflation and reducing overall demand. This, in turn, will put additional downward pressure on oil prices. OPEC+ currently finds itself unable to intervene to stabilize the oil prices. Any attempt to adjust output could risk losing more of its legitimate market share to non- OPEC producers. Given these conditions, now may not be the right time for OPEC+ to step in.