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Kuwaiti oil in crisis, compared with post-WWII, says AlShall

Kuwaiti oil in crisis, compared with post-WWII, says AlShall
Photo Credit: Arabianeye-Reuters

The oil market is currently living through its third crisis since the post-World War Two period, Al Shall Consulting said in a published report. “Firstly, the market crashed catastrophically in 1980s on oil glut, followed by a structural setback in the late 1990s before suffering the current crisis which began in the fall of 2014.”

The report noted that “During the oil boom, all analysts, scholars and even boards and committees set up by the government agreed on the inevitable occurrence of the third crisis, with disagreement only on its timing. The Government acted contrary to the advices it received, the latest of which was increasing the public expenditures by 10% in July 2014.”

Al Shall said that nominal prices would not slide to the verge of $10 per barrel as in the two former crises, but with the increase of public spending by five times in the period of oil boom, the $10 which was before is now equal to $50 in terms of the negative repercussions on the public finance.

Oil market is weak on demand due to sluggish global economic growth in general and weak growth of emerging economies led by China which was the cause in the past for stimulating demand on oil.

“Saudi Arabia and Iraq and later Iran, for example, all produce or wish to produce at their maximum capacity which would send prices to plunge much below $50 per barrel,” added the report.

The Kuwaiti crude price went below the conservative budget figure for the current fiscal year at $45 per barrel, which is an indicator of the weak oil market position in the medium to the long term run.

Edited by Pavly A. Makary