KUWAIT CITY, Dec 4, (KUNA): Oil prices have been on the rise by 15 percent since the Organization of Petroleum Exporting Countries (OPEC) decided on Wednesday to cut production as of January 1, an analyst has said.
In an interview with KUNA on Sunday, head of Al-Ofuq consultancy center Dr Khaled Boodai, expected oil prices to hit $60 per barrel (pb) by the end of the year, thanks to last week’s landmark decision concluded by OPEC.
On Wednesday, the OPEC members concluded a historical deal in Vienna to cut production by 1.2 million barrel daily as of 1 January.
Also, the organization received vows from non-OPEC producers to cut production by 600,000 barrels per day. Russia alone will cut 300,000 barrels daily.
In order to secure success for the deal, there is a dire need for the OPEC members to commit themselves to the deal. Non-OPEC producers will also have to honor their voluntary steps to reduce production, Boodai said.
In addition to the impact of the OPEC decision on prices, it also sends a strong message that the organization is ready to intervene in time to discipline prices, he said. This positively affects the entire scene, giving confidence to markets, and investors.
Moreover, the rise in prices will give a push to the shale industry, which will in time constitute more pressure on prices. Unluckily, this will be limited owing to the environment risks that restrict any potential expansion in the industry, Al-Ofuq chief said.
He also referred to the flagging economies in some oil consuming countries, which could curb rise of prices to the old record levels.
According to Boodai, OPEC’s intervention proved fruitful and effective in the past, and had a positive outcome; However, the organization’s inaction, as has been the case since the start of this decade till last November, led prices to deteriorate.
He referred to the huge budget deficits in the world’s major oil producers, especially in the Gulf, which mainly, or even solely, depend on oil revenues for income, due to the severe unprecedented falls in prices over the past months.
Boodai pointed to expectations by specialists that demand on oil is growing, saying that an acceptable price for producers at present could be $65-70 pb.
OPEC needs to develop stable policies on controlling production and protecting prices, which it will have to adjust with the changing conditions on the market, he concluded.