After deal reached, time for OPEC to be realistic – Members must work closely to lift prices

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Kamal Al-Harami
Kamal Al-Harami

Last Wednesday, OPEC managed to agree on regulating its oil production and reducing its daily throughput between 250,000 to 750,000 barrels. This agreement will come into effect after OPEC’s official meeting in Vienna at the end of next month.

Last week, a tentative agreement was reached in order to iron out the differences in terms of the volume, and ensure reduction of oil production by every member of the organization, most importantly by the strongest and biggest producers in the group.

This reduction in oil production comes eight years after OPEC’s last agreement to manage the production limit and individual quota for each of its members.

On the face of it, last week’s agreement is a great success for the oil organization and indicates the desperation to put aside all differences in order to revive the hurt economies of all OPEC members states as their economies had to manage such low prices for so long.

The period from now until the end of next month is a safe time to debate, take necessary actions and turn numbers and words into figures and additional income.

Oil prices reacted positively. The oil price per barrel is reaching $48 level and could easily reach the $50 level soon as long as the recent agreement stays.

The questions on everyone’s minds are — what happened behind the closed doors? How did Saudi Arabia and Iran manage to come together and reach a conclusion? Who blinked first? Or did both of them blink at the same time?

Of course, the economy was among the main factors, as both were in need of cash and both were fed up with the oil prices, which had dropped from its mighty rate of above $120 to below $30 per barrel. Therefore, OPEC said it’s enough and that logic must prevail, which resulted in the magical formula to which both had agreed. Iran agreed to limit production at 3.8 million and Saudi agreed to reduce throughput by 500,000 barrels per day. This is a very interesting understanding and each party is proving to others that a compromise has been reached.

The next step is for Russia to come clear and show us their genuine intentions to comply with the agreement and reduce their production or at least freeze their production level, as they were the creator of the concept of freezing production.

No one expected OPEC to reach such a positive conclusion. Algeria, Nigeria and most of all Venezuela, which was the hardest hit member, never stopped trying in every possible aspect and managed to finally succeed.

The journey is long. One more month is enough to look into every detail. Every member of OPEC should work closely and must be ready to compromise in order to put an end to salary cuts, reduction of subsidies and job losses.

It is time for OPEC to be realistic and not greedy. The barrel price should increase but should not exceed a price level of $55 for the next few years in order to avoid another price war, especially after experiencing bad situation in the last two years.

We hope the recent oil compromise will lead to further positive cooperation.

 E-mail: [email protected]

By Kamel Al-Harami

Independent Oil Analyst

 

This news has been read 5977 times!

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