Oil price is hitting its highest level so far this year with Brent at $52 per barrel. The barrel is closing at a much better level mainly because of the recent understanding that was reached between OPEC and its biggest non-member producer, Russia. This will definitely lead to a smooth meeting next month in Vienna.
Now it is down to discussing with Russia on specific issues concerning accepting to freeze or cap its production, provided all members of OPEC agree and stick to the decision. Therefore, a verdict has been reached and new history is to be written between OPEC and the biggest oil producers in the world. No one can now question Russia’s demand made by its leader to freeze and to cooperate. New ground has been broken.
The agreement in Algeria last month signaled that an understanding was reached with OPEC to reduce production, meet Iran’s demand by halfway and for Saudi Arabia to freeze or reduce conditions upon Russia’s agreement to join the club.
The oil organization will meet next in Vienna to come out with a final communiqué, provide a breakdown of the maximum ceiling of production and determine the quota of each member. After each member agrees on its production level, the barrel price will gain its fair market level and the market will thus gain stability.
It will be a long journey before finalization but the intention and common objectives have been settled. For the first time, Russia is on par to share the burden in fighting to settle the oil prices at a reasonable rate and stop the financial bleeding.
Now the next step is to agree on the volume of oil that can stabilize the price of the barrel and the quantity of excess oil that needs to be erased. Is it better to cut 750,000 barrels or 1 million barrels and reduce the OPEC throughput to around 32.6 million or combined with Russia’s production freeze from its peak of 11.1 million barrels?
The oil ministers must work hard on the volume reduction/production freeze, share of each member in the reduction, new ceiling, quota and production limit to allocate to Iran. Such tedious questions must be ironed out for all to sign the final agreement, ensuring that Russia is committed to OPEC’s decisions.
The path is long and is headed towards a comprehensive conclusion that will produce better financial rewards for all.
By Kamel Al-Harami – Independent Oil Analyst