With oil prices approximating between US$30 and $33 per barrel, having narrowly avoided closing at the lowest unit price since 2003 on Tuesday, governments, energy businesses, and investors around the world are reeling from the commodity slump’s multitudinous blows.
NASDAQ data shows that these tenuous trading prices, which have been sinking for six years and are now below break-even costs, average just one-third of international benchmark Brent crude’s price per barrel 18 months ago. The cartel controlling oil trade, the Organisation of the Petroleum Exporting Countries (OPEC), now faces intense scrutiny for its strategic response to the prices, which fall in an inverse relationship to rising supply and production.
In a move seen as counter-intuitive by some of its members and industry forecasters, OPEC rejected calls to curb its output in July last year, proceeding to operate with its market-flooding strategic policy. OPEC’s statement explained that the decision takes into account the forecast of a balanced 2016 market, which could provide “much desired stability” for long-term oil prices. Its annual World Oil Outlook publication extrapolates on the Organisation’s position regarding future costs.
“…access to more expensive oil in the future – whether achieved by developing production capacity in more challenging environments or by using more expensive technologies – will affect costs,” said the report.
The contention surrounding OPEC’s decision comes amid today’s climate of instability in energy and resource sectors worldwide. Energy exploration and production giant BP, still reeling from $1 billion of cost-cutting measures announced in the wake of the Gulf of Mexico disaster in 2014, has announced it will lay off 4,000 employees from its operations. It is among the many entities seen to be at risk of corporate bankruptcy, and its job cuts will affect workers in the North Sea region, the United States, Angola and Azerbaijan. In Alaska, BP’s forced redundancies would mean a 13 percent cut to its workforce. When ‘unconventional reserves’ were discovered across North America, energy giants developed new facilities for the extraction of Arctic Oil, Canadian tar sands, offshore reserves, and shale formations. The Alaskan sites, where “tough oil” extraction was a burgeoning industry following predictions of booming growth in 2014, have now been called into question as oil prices plummet due to oversupply.
Furthermore, significant investment losses and depleted government revenue have placed fiscal strain on global leaders in oil production. Russia has announced a 10 percent government spending cut in an attempt to curb its plummeting national revenue, which relies on oil production and trading for 50 percent of its income.
China – already grappling with the instability of meteoric economic growth – is at risk of further damages as the largest buyer of oil globally. Other countries like Nigeria, now financially weakened by economic strain, could suffer further impairment at the hands of terrorist group Boko Haram, whose operations thrive on political instability.
All of these geopolitical, financial, and economic concerns are overshadowed by universal factors affecting oil prices and commodity trading worldwide. OPEC, following its 168th meeting, released a statement which said that environmental concerns affect its movements, as well as the operations of all companies drawing on energy resources.
“[the meeting] stressed that climate change, environmental protection and sustainable development are a major concern for us all,” said the statement.
These factors can be seen as harrowing prophecies about the future of global energy and resource industries. Few positives have been predicted to arise from the developing global energy crisis, but there remain a handful of beneficiaries. The Reserve Bank of Australia has predicted overall economic growth resulting from weaker oil prices globally, and the cost of fuel – both for vehicles and most aircraft, including those of Australian line Qantas – remains low. The question of the long-term effects of the extraction, trading and pricing of oil remains unanswered.