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Will oil really go to $10 per barrel

There is a conflict of opinion regarding the probability of lowering of oil prices.  Where certain analysts are of opinion that the oil prices will fall as low as $10 per per barrel (pb), the bounced back rates makes others believe that the price will again surge to the previous levels. The surge in price has made a positive impact on the oil exporting nations, which are hoping for further improvement and further positive market shift.

However, rising US supply and other OPEC countries capacity building projects predicts the possibility of declination in prices due to excess supply within the market. This is evident by the Kuwait Oil signing off $12 billion in development projects and the possibility of having 120 rigs in service by 2016. Also, the internal warfare for acquiring more market share within OPEC countries also puts pressure on oil prices in longer term although it is predicted that these effects may become evident even within a short span of time. Keeping in view the past, Saudis are reluctant to reconsider their oil supply whereas Iraq, Russia and Venezuela made their budget with higher oil price assumptions and thus making them fight for the overall increase in oil revenues by acquiring more market share. Although the analyst are saying that the recent sudden bounce back in the prices are mainly due to the unrest in Middle East and not with respect to the decline in new investment in US Shale oil, since, the survey conducted in January, 2015 by Wood Mackenzie, an energy research organization, found that of 2,222 oil fields surveyed worldwide, only 1.6 percent would have negative cash flow at $40 a barrel. That suggests there won’t be a lot of shale oil Company going out at $40. Also, keep in mind that the marginal cost for efficient U.S. shale-oil producers is about $10 to $20 a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf. Although the average cost of production for 80% of new US shale oil production this year will be around $50 to $69 as per Daniel Yergin of energy consultant IHS Cambridge Energy Research Associates. Though, the leaving out for US Shale Company is not actually the average cost but the marginal cost of production (i.e., the cost needed to produce additional barrel) which analysts think that is around $10-$20 pb.

On the other hand considering the demand side, China which was considered the major contributor for the oil demand growth in the last decade is now cutting its demand. Also, the other biggest consumer of oil is US where the public is now using much more fuel efficient cars. Thus, combining this there will be a sluggish demand of the oil in future. This is also predicted by the OPEC in its previous reports. So, the decreasing demand and the increasing supply will bring the oil prices to very low levels.

Hence it is predictable that countries that import oil are to face beneficial and positive consequences in the near future this impact will be most visible in countries like Pakistan whose electricity production is also much dependent on Fuel, the oil price decline will also result in cheap electricity production. Also, the people will switch from CNG to Petrol so; the gas load shedding will be reduced sharply. The import bill will also decline and will result in positive impact on balance of payments.

Hence hoped that the Pakistani government will extract maximum advantage for the afore mentioned situation and, will positively utilized this scenario for Pakistan by transferring the oil prices declination to the end customer immediately and will use its power for decreasing the other oil dependent good‘s prices.

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