Wednesday , October 18 2017

Who is the new oil leader? – OPEC must have plan B to retain its role again

Kamel Al-Harami
Who indeed is the new oil leader? Without any doubt, it is Russia.  Russia is the one behind OPEC and the recent agreement of OPEC. Without its intervention, the oil prices would have still hovered around the level of $40 per barrel. The early historic agreement reached with Saudi Arabia this year resulted in Russia taking the lead, with its direct contact and influence over Iran and Iraq and other oil producing countries that clinched the last OPEC deal.

Saudi Arabia alone could not have done it without the influence and political power of the biggest oil producer.

The accord will go on and oil prices will strengthen further from the beginning of next year when oil cuts will come into effect, considering the winter season and stronger demand for oil compared to other months of the year. The market is hopeful that the surplus crude oil in the market will be reduced substantially due to cuts in oil production coupled with increase in demand.

The cuts will be implemented even if some OPEC members do not fully adhere to the last agreement. Saudi Arabia might be willing to decrease its throughput further to ensure expedition of the necessary reduction in oil surplus as soon as possible in order to bring balance in the market.

With the disappearance of more than 600,000 barrels, OPEC should adhere fully to its commitment by the third quarter of next year if not earlier.

In the meantime, some OPEC countries will be ready and OPEC must have a plan B by not letting the oil prices go above the $60 level. It should have learnt its lesson by now. OPEC will hence retain its traditional role again; if not, Russia will enforce its role again.

Some OPEC members will increase their production, such as those that were free to do so such as Nigeria. It may reach the previous level of more than 1.8 million barrels but then Saudi Arabia will again be willing to further cut down production in order to balance the market again for ensuring any surpluses are avoided and the oil inventory is balanced again.

The oil producing countries learnt a hard lesson from the November 2014 decision and their push for higher oil production. However, let us put the past behind us and bring balance in the oil market.

The complete cooperation of non-OPEC countries has added a new dimension. Their desire to benefit from the recent agreement of more than 15 percent increase in the oil prices is a clear indication of the oil market’s confidence. Now the biggest producer has joined OPEC and has become the main player.

For how long will it last? And why not? It is good news indeed!

email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

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