Syed Rashid Husain The bloodbath is all set to continue. Positions are being firmed up. A long battle is in hand and stakeholders are preparing and positioning themselves. Saudi Arabia, the top oil exporter, reiterated at the highest level, that it would deal with the challenge of lowering oil prices, “with a firm will.” In a speech last week delivered by the Crown Prince Salman bin Abdulaziz on behalf of King Abdullah, Saudi leadership clarified its position: “You cannot be blind to the tensions in the global oil markets ... these are not new developments and we have dealt with it in the past with a firm will and wisdom ... and we will deal with the new developments in the same vein.” And then on Friday, after two days of relative stability, oil prices slumped again, hitting 5-3/4 year lows amid speculation that OPEC is standing on its original position - it won't pare output - unless competitors too agree. Prices went down, when the UAE ambassador to the US Yousef Al Otaiba reiterated his country's position that the United Arab Emirates has no plans to reduce output - no matter how low the prices drop. The country appears getting prepared for long haul. The UAE can live with current market conditions “a lot longer than people expect,” Al Otaiba, said in Washington last week. “This extra glut in the market is not coming from the OPEC members, so therefore, why should the OPEC members need to cut their production?” Oversupply in crude markets could take months or even years to fix depending on when producers outside OPEC cut their output, Abu Dhabi daily ‘The National' reported, citing UAE Energy Minister Suhail Al Mazrouei. “We are experiencing an obvious oversupply in the market that needs time to be absorbed,” Mazrouei told the newspaper. The minister too reiterated that OPEC didn't contribute to the glut “and should not be blamed if other, non-OPEC producers oversupply the market.” Kuwait has also been underlining its commitment in recent weeks not to cut output, irrespective of the market prices. Iraq's oil exports in December were also reported at their highest level since 1980. Iraq exported 91.141 million barrels of oil in December for an average of 2.94 million bpd, the highest daily average since 1980. Some other OPEC members seem in the soup. Iran is badly missing billions of dollars in oil revenue due to the slipping markets. President Hassan Rouhani, elected on a pledge of prosperity to be achieved by ending Iran's global isolation, is facing a falling stock market and weakening currency. Iranian officials are warning of spending and investment cuts in next year's budget, which will be based on $72-a-barrel crude. Even that forecast is proving too optimistic. Iranian hard-liners are now lashing out at fellow OPEC producers of conspiring with the West to keep oil prices low in a bid to harm Tehran's economy and pressure the country to conclude a nuclear deal with West. “We will not forget which countries schemed to lower the price of oil,” the speaker of Iran's parliament, Ali Larijani warned darkly during a visit last month to Damascus, the Syrian capital. And while the chorus to cut output cut seems growing, especially in Moscow, Russia continues to produce at extremely high levels. Russia's oil output hit a post-Soviet high last year, averaging 10.58 million barrels per day (bpd), up 0.7 percent thanks to small non-state producers, Energy Ministry data showed. But despite higher output, falling prices are a major concern. Russian economy may shrink 4.7 percent this year if oil averages $60 a barrel under “stress scenario,” the Russian central bank said in December. The plunge in crude prices also prompted a sell off in the ruble with the Russian currency falling to a record low against the dollar, tumbling 46 percent last year, its worst performance since 1998, when Russia defaulted on local debt. Venezuela, which relies on oil for 95 percent of its export revenue, too risks insolvency. The cost of insuring the country's five-year debt has tripled since July, Citigroup reported. President Nicolas Maduro is reported to be planning a visit to China to discuss financing. He is also expecting to travel to other OPEC nations to work out a pricing strategy. The battle is thus on! “The price war continues and there's a great deal of excess supply,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago was reported as saying. “The statements from the UAE ambassador show that they're doubling down and taking no prisoners. This will be a long fought war and they have the Saudis behind them.” How much is the oversupply in the market? 2 million bpd - says Qatar. And this seems to be infecting the crude markets in real sense. The just reported data showing a surge in US gasoline and diesel fuel supplies also spell more trouble for oil prices. The Energy Information Administration on Wednesday reported that US gasoline stocks rose by 8.1 million barrels last week, compared with expectations for a 3.4 million barrel build. Distillate stocks, including diesel fuel and heating oil, rose by 11.2 million barrels, more than five times the amount expected. The data showed a bigger-than-expected drop of 3.1 million barrels in crude inventories last week, but it also showed that US oil production rose again - to 9.132 million bpd - on par with the largest output in more than three decades. Production was at 9.12 million barrels a day last week, and has been above 9 million bpd since early November. On the other hand as oil import bill is falling, the US trade deficit too has narrowed to 20-year low. The US merchandise trade deficit was $39 billion, down 7.7 per cent from the October deficit of $42.2 billion. Imports were down 2.2 per cent to $234.4 as the US imported less crude and paid lower prices for it. And despite the lowering prices, and all sort of assertions that shale output could get a hit, the US Energy Information Administration is now suggesting that US oil production will grow in 2015. Through an analysis of oil permits, rig movement and the groundbreaking of new drilling projects, known as spudding, in North Dakota - home to some of the most active production fields in the country - the EIA's “Drilling Productivity Report” is asserting that US oil production should continue to increase in 2015. The agency is expecting US crude oil production to average 9.3 million barrels per day (bbl/d) in 2015, which would be an increase of 0.7 million bbl/d from 2014, but down from expected growth of 0.9 million bbl/d in last month's Short-Term Energy Outlook. Just as supply continue to go up and up, demand for oil has been slowing too. Oil consumption in Europe and Japan fell in 2014. In the United States, tighter fuel economy standards for vehicles and the closure of petrochemical plants led to a reduction in demand for crude. Slowdown in the Chinese economy, leading to a lower rate of growth in the country's thirst for oil is also impacting demand strongly. Markets are thus in flux. Bottom is still to arrive - one could now argue with some sense of certainty.
