Many of the world’s oil producers have recently agreed to cut back oil production by 10 million barrels a day. The world is in quarantine mode. Demand for oil has dropped significantly. If demand drops and supply stays the same, then the law of demand and supply would tell us the price of a commodity like oil must also drop. The production cutback agreed to by the producers is to try to bring the demand/supply equilibrium to a price point where oil producers can generate enough revenues to run their resource dependent economies. Brent Crude, the benchmark for Guyana’s oil, recently went below US$23/barrel – a price not seen for more than a decade. The break-even price for Liza Phase 1 is about US$35/barrel. Hence, it is puzzling why Guyana has not indicated any intention to curtail its oil production. Who benefits when we sell our oil below cost? Certainly, not the Guyanese people.
If an eddo farmer can get $230/lb. for her produce, she will do a simple calculation to determine if she can make a profit. If she must pay someone to reap and sell the produce but it costs her at least $350/lb. then she will leave them in the ground. It is just common-sense since selling at a loss would mean she would have to find an extra $120 for every pound she sells. For the humble farmer, it is money she cannot afford to throw away.
Guyana’s Liza Phase 1 project is currently ramping up to produce 120,000 barrels of oil per day, that is about 3.6 million barrels a month. If Brent Crude hovers around US$23/ barrel, then that is a US$12 loss per barrel. Hence, per month, we would be incurring a loss of US$43 million.
