By Tyaba Ssettumba Abubakar
2016 will for long be remembered as the year in which a sizeable oil prices tumble threatened a second economic meltdown in less than 10 years.
Oil prices have fallen from over $100 a barrel in 2014, to less than $40 in mid-2016 across the various markets. This definitely had a major effect on economies relying on the export of oil especially members of the all-powerful Organization of Petroleum Exporting Countries (OPEC) an entity that has traditionally controlled prices.
Member economies like Nigeria and Venezuela are in recess. Venezuela's Nicholas Maduro is fighting for his own political survival as a scarcity in petro dollars has created artificial scarcity of essential household goods especially food. A section of the masses wants him out – blaming his government for poor performance. This reality has been witnessed in other oil reliant economies.
The collapse in prices could be attributed to the wide political divisions within OPEC especially powerhouses Iran and Saudi Arabia. Libya - another major player in the bloc is yet to recover following the forceful ouster of Col Maummar Gadhafi almost five years ago.
Sector analyst Nicholas Phythian of Phythian Content and Consulting Ltd told journalists undertaking the Strengthening Media Oversight of the Extractives Sectors course organized by the Natural Resources Governance Institute in Dar el Salam Tanzania that another reason for the tumble in the prices was attempts by Saudi Arabia to sabotage U.S operations by flooding the market with low – priced oil starting in 2014. The Americans are mainly fracking their oil.
Hydraulic fracturing is a well stimulation technique in which rock is fractured by a pressurized liquid. The process involves the high-pressure injection of 'fracking fluid' into a wellbore to create cracks in the deep-rock formations through which natural gas, petroleum, and brine will flow more freely.
As of 2012, 2.5 million "frac jobs" had been performed worldwide on oil and gas wells; over one million of those within the U.S.
Scott Sheffield the Chief Executive of Pioneer Natural Resources – one of the major fracking companies in the United States told Nasdaq.com in June 2016 that production costs have fallen to $2.25 a barrel in some locations. This is expected to put more pressure on Saudi Arabia and other OPEC members.
In effect, this is expected to put more oil on the market – thereupon keeping the prices lower than sustainable for oil reliant economies.
How will OPEC react? Nicholas Phythian says the world should wait for answer to this question in November when OPEC members are expected to meet for a way forward.
It also remains to be seen whether the low prices will discourage other countries like Uganda and Kenya from pursuing developing their oil and gas sectors – at least for the time being.
No comments:
Post a Comment