Friday , January 19 2018

OPEC await Russia’s call

OPEC’s meeting in Vienna last Thursday didn’t last long. Like the previous meetings, it needed a simple nudge from Moscow, which happened. Thus, an agreement was reached to extend the current production cuts of 2.8 million barrels per day until the end of 2018.

OPEC is no longer in the driving seat. It must have full agreement from Russia, which is the biggest oil producer with capacity of 11.5 million barrels. However, the later has to comply and reduce its production rate to ensure a stable oil market and an oil price of $ 60 level or slightly above that is accepted by all OPEC members including Saudi Arabia, which is the biggest oil exporter in the world.

This harmony and warm relationship between Russia and OPEC is the cornerstone of the current agreement, which began last year. It eventually led to better understanding and strategic alliance between the biggest oil producer and the biggest oil exporter in order to bring order and stability in the oil market.

Now 24 oil producing countries have agreed to maintain the ongoing production cuts for another one year. Their main nightmare is the shale oil producers in USA who were pleased with last week’s deal, as it was comforting to them and protected their investments at floor level at $60 and above.

OPEC has given them insurance and protection for their ongoing investments. Therefore, the most likely scenario is for shale oil to expand and for USA to achieve oil production above the current level of 9.5 million barrels.

OPEC is now running out of options and has to reduce its production along with Russia while the current inventory is above 150 million barrels. This must be reduced in order to create better balance and allow oil prices to increase gradually but not at fast rate.

This is the intention of OPEC and Russia — to avoid any steep increase in oil prices as they don’t want a bad repetition of the past and give oil consumers the comfort of stability.

Another successful meeting for OPEC but it had to rely on a final nudge from Moscow.

e-mail: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

 

 

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