The same OPEC approach means continuity of oil prices slump
A commentary by Mehran Amir Moeini, the deputy researcher of the international center for energy studies
OPEC will be holding a formal meeting on 17th December in Algeria. If it does not decide to decrease oil production, the prices would continue to fall.
According to the Iranian oil minister, the global market is now facing an extra two million barrels of oil produced. So the main oil exporters should find a way out of this problem and fix the market for the next month. There are also rumors pointing to the Iranian parliament and government agreement for setting the oil price at 45 dollars a barrel in the next year’s budget. Here is a commentary by Mehran Amir Moeini, the deputy researcher of the international center for energy studies, on the issue.
In the current economic situation of the world, one can not definitely predict the oil price in the coming months. It seems that in the next six or seven months the oil prices would experience many fluctuations and the prices would certainly fall again.
The OPEC approach in oil production and a decrease in demands for oil in global market have led to extra amounts of oil in the global markets. This fiscal year, the demands for oil has experienced a 1/5 million reduction, compared to the previous year. So now there is an extra 2 million barrels of oil in the markets.
All these factors have led to the oil prices slump. If in its Algerian meeting, OPEC decides not to decrease oil production, the world would witness an ever continuing oil prices slump.
One can not predict the minimum possible oil price. But one can ascertain the fact that the current OPEC approach and the extra oil in the global markets would keep the prices low.
Oil price and the Iranian budget
The Iranian government and its budget are really dependent on the oil incomes. So the oil prices slump and its continuity would severely damage not only the Iranian budget, but also the whole economic structure of the country. At the same time, if the Iranian government decides to do the budgeting according to higher oil prices but the prices still remain low, then the state’s expected income would not be achieved. In such a situation, the government faces a serious budget deficit which would make it ask the central bank for help.
This scenario has been repeating itself in recent years and it has led to the growing inflation rate and deteriorating economic situation. The best solution in this regard is a conservative approach in budgeting. So the government should set the oil price in the budget at a lower rate than usual.
SO if the oil prices go up, there would be an extra state income which would go to the Iranian reserve fund; and If needed, the government and the parliament would agree on presenting budget supplements to make up for the deficiencies. There is also the possibility of devising different scenarios based on different oil prices. Acting on these scenarios, the government would be flexible enough to save the economy from crises.
The rumors are saying that the price set for oil in the Iranian budget is 45 dollars a barrel. This is not a good decision. The lower prices like 30 or 35 dollars a barrel should also be considered by the government.