The Organization of Petroleum Exporting Countries (OPEC), has no reason to exist and the price of a barrel of oil will go down to 50 dollars in the coming months, says a report from the Bank of America (BofA). It indicates that revolutionary changes in the energy sector will lower the price of liquefied natural gas (LNG), which implies that it will become a source of cheaper energy for Europe.
According to Francisco Blanch, head of commodities of the bank, who was quoted by Times newspaper, OPEC was “effectively dissolved” after refusing to take action to stabilize oil prices at its last meeting.
“The impact is huge because now, the market price will be affected by a large fluctuations in the transactions that will benefit only major Gulf oil producers, such as Saudi Arabia, which have large cash reserves, that can withstand these variations” said Francisco Blanch before continue that “However, smaller producers, such as Venezuela or Nigeria, will be the big losers in this situation”.
The report also says that nearly 15% of US shale oil producers are losing money right now, and that more than half would go bankrupt if crude oil prices were to fall below 55 dollars a barrel. This conclusion does not coincide with those of another US banking giant Citigroup, which estimates that a barrel of the Argentina and Mexican shale oil will be around 40 dollars. This situation will force Canadian producers to limit their production in some areas, and the Russian producers also in some isolated oil fields.
It will take about 6 months to sell the surplus oil that is currently available on the market, which justifies the drop of the price predictions up to 50 dollars a barrel. But at the end of this period, in the second half of 2015, there will be a shortage on the market, which will result in a sharp rise of the oil price to nearly $ 80 a barrel or even $ 90. This situation helps the US oil producers to anticipate the marginal costs of production, which means they could resist the fall of the price to 50 dollars. That falling prices could also affect the Bank of America, warned their report.