Why Oil Is No Longer A Reliable Financial Income Option

Published September 27th, 2020 - 10:00 GMT
Why Oil Is No Longer A Reliable Financial Income Option
There are indications that oil prices will stay firm at the level of $45 per barrel, if not fall within the range of $35 in the near future, in the absence of any cure for the COVID-19 virus, a quick economic recovery, and pick up in the demand for oil in the transportation sector. (Shutterstock)
Highlights
Party time is over; it is now time for us to search for a new source to meet and feed our annual budgets
FOR how will we, as oil-producing countries, depend on more than 90 percent on oil as our sole source of income for providing and meeting our daily requirements? Someone must stand up and say, “Oil is no longer the source of our daily finances”.

Party time is over; it is now time for us to search for a new source to meet and feed our annual budgets. There are indications that oil prices will stay firm at the level of $45 per barrel, if not fall within the range of $35 in the near future, in the absence of any cure for the COVID-19 virus, a quick economic recovery, and pick up in the demand for oil in the transportation sector. With the recent second wave of COVID-19 pandemic, the picture certainly looks bleak.

During the recent OPEC-Plus virtual meeting, the Saudi minister of Energy clearly stated that all oil countries must stick strictly to the production quotas. He also warned oil traders in particular not to speculate on the future oil prices.

 

Fighting on two fronts is an extremely hard task to achieve. If OPEC-Plus cannot manage its own members in terms of meeting their quota volume, how on earth will OPEC Plus go all the way in fighting oil traders and speculators of the future situation?

The moment Libya announced its intention to export oil, and affirmed that the harbor is ready, the oil price took another dive. Market forces and the demand-and-supply rate are beyond all of our control. In the presence of the COVID-19 crisis, there is no way to anticipate anything. The arrival of Libyan oil is not enough to meet the new Iraqi demand for additional relaxation on its quota and for more oil export.

Having oil as a sole source of income can no longer ensure steady income for most OPEC countries especially with the looming arrival of electric cars. Within the next five years, electric cars will be seen in every corner on the streets connected to electric plugs. This will happen even in oil-rich countries after the price of electric cars becomes competitive to the traditional fuel-based vehicles. Then the demand for car fuels will drop dramatically after losing one of its supply pillars.

Kuwait is facing a problem in terms of shortage in our income exceeding 50 percent of our total budget of KD 20 billion. Of course, there are many short solutions and the easiest one is short-term borrowing; but what next? For how long will we borrow, while our financial ratings are getting downgraded, along with two of our leading commercial banks?

Immediate intervention with local economic and financial experts is essential to sort out all the problems. The trend of relying on strong oil prices has gone forever; if any solutions are available, then they must be brought up and implemented.

Perhaps, we in Kuwait are forthcoming and we at least speak openly about this. The rest of OPEC countries should think the same; it is time for seeking outside help, which is a must action.

The situation is desperate, and moving away from oil is the right positive step. We have been saying this repeatedly since the collapse of oil prices in 2014.

By Kamel Al-Harami

The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.


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