Oil market needs tighter regulation

Why is the oil and gas industry not better regulated, when the commodity is perhaps one of the most important on this earth?

Countries should be working together to see that this happens, to avoid the fluctuations and afflictions that continue to plague the sector ("Oil price dips below US$30; region counts cost"; yesterday).

A situation where depletion would become the order of the day, forcing prices up as predicted some years back, has not come to pass.

Rather, the reverse has happened, where the commodity has become abundant to the point of spilling over, with better extraction methods backed by even more advanced technology.

So, even in areas where oil and gas were seemingly impossible to get to in the past, it is now so much easier.

Oil fields that were reaching the end of their utility can now be brought back to life using enhanced recovery techniques, reviving many fields.

This is occurring across the globe, so that production overall is at an all-time high.

With no one willing to back down, for fear of losing their market share, this has begun to put tremendous downward pressure on oil prices, which have slumped to record levels.

If only there were more discipline among producers to exercise more restraint at the tap.

If allowed to continue, this will threaten the industry as a whole, with many companies likely already on the verge of bankruptcy. It could become especially critical next year, if the situation does not improve.

Of course, we have gone through this before. I remember 1986, and how companies that were weaker and not known for best practices were weeded out.

The industry will rationalise, evolve and become more efficient and productive, and eventually bounce back stronger. It has before, and it has to again.

But there must be a firmer grip on the oil market. It has to be monitored more carefully and kept in check, considering the harm falling prices can cause to many companies.

Manoraj Rajathurai

A version of this article appeared in the print edition of The Straits Times on January 15, 2016, with the headline 'Oil market needs tighter regulation'. Print Edition | Subscribe