Expensive oil on the way; OPEC+ has learnt a lesson

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IT does not seem as though the oil prices will come down soon. It is more likely heading towards a level of $90 per barrel before the end of the year. In addition, there are reports that Saudi Arabia may extend its voluntary cuts of one million barrels cut for another month, coinciding with the picking up of the seasonal demand for oil, which is reaching a historical level of 101 million barrels per day. In the meantime, banks’ interest rates are on the rise, making it more expensive for OPEC+ with its borrowed monies and financing.

Kamel Al-Harami Independent Oil Analyst

Also, it is getting more expensive for oil consuming countries, which are facing double increases at the same time. In this case, one element has to give in. However, OPEC+ is not in the mood for compromise, and intends to stick to its reduction policy for stabilizing the oil market, as it has its own economic challenges, in terms of deficits in budgets and the need to create new jobs in consideration of the population growth. Oil prices jumped from their low of $75 per barrel to the ongoing level of $86 per barrel, which made OPEC+ happy and satisfied with any further increase, as it will certainly lead to a better outlook for their economy.

The question is whether the oil organization can maintain such a comfortable level, and lead or control oil prices for a long period, as OPEC+ had learnt its lesson and can move forward in managing oil markets along with prices. With Saudi Aramco taking the lead in cutting down one million barrels of net income for a short-term better return, the need for bettering the black gold should be highlighted, as to what becomes the advantage of such an organization without influencing oil markets and benefits to its members, and with the arrival of stronger and bigger producer like Russia to participate in sharing the responsibility and directions.

The continuation of OPEC+ in reducing and cutting its oil production is extended now to one more month, with Saudi Arabia reducing one million barrels, Russia 300,000, and Algeria 20,000 barrels per day. This will certainly lead to further strengthening the petroleum organization to a new level of commitment. The group’s output volunteer cuts amount 3.6 million, excluding its three members’ ongoing voluntary cuts that total 1,420,000 barrels of Saudi, Russian, and Algerian oil, equating to more than four percent of global demand. With the ongoing production cuts, it seems certain that the group will match any increase in oil production of countries outside its setup like USA, Canada, and Brazil, which are heading oil prices for a higher level, but certainly not any lower anymore.

Accordingly, the oil prices are bound to rise and remain strong, even making OPEC+ in charge more than any time, while not making or giving USA any chance for filling up its strategic reserve at low price. It will most likely have to pay more than $10 per barrel additionally compared to its original plan. This will make the USA administration angry, if not foolish by not taking the right and wise decision at once, unlike China and India, which bought cheap Russian oils at less than $ 60 per barrel and filled all their storage such that they do not have any ullage anymore. With certainty, oil prices will continue their push for higher levels with OPEC+ in unity, as illustrated by Saudi Arabia and Russia continuing their production cut well into September. Finally, OPEC+ learned its lesson and is heading towards stabilizing the oil prices, while balancing its bookkeeping. By Kamel Al-Harami Independent Oil Analyst

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