No action is best available option for OPEC ministers – Oil prices likely to hit $60 by end-2016

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Kamal Al-Harami
Kamal Al-Harami

Regardless of the outcome of OPEC’s meeting in Vienna last week, doing nothing was the best result. The organization did nothing to boost the price level or deter any fluctuations to it. The oil prices have doubled since January and are likely to hit $60 per barrel by the end of this year. The demand has been improving and the surplus is gradually reducing, thereby bringing a pleasant end to the misery that was experienced over the last couple of years.

Despite the internal loud quarrels among close members of OPEC, oil status has been improving much better than expected and is better than the ministers themselves expected. This is because of the market behavior and its forces that have been totally oblivious to the internal struggle within OPEC.

Even before the meeting started, the ministers who had gathered did not talk about either the oil production or the production levels, leaving it this time to the basics of supply and demand.

In reality, OPEC was producing more than 32.6 million barrels, which is close to its historical level of over 33 million. Every member is producing to its maximum without looking in the front or behind but with the sole aim of pushing for more oil and money. However, it is much lesser than the previous years due to which they had to adjust with the hard reality of the market.

Perhaps the meeting last week is another proof of the diminishing role of the oil organization, as it could not manage the global supply, maintain stability of the market or improve the prices to a level that is satisfactory for all its members. Nevertheless, this was better than weakening the market.

Definitely, the oil ministers will return with some good news about the prices firming up to the level of $60, which will perhaps reduce their financial crisis to a certain extent, but they will still have to borrow heavily from international banks. The Arabian Gulf countries borrowed a total of about $12.5 billion last May and will most likely borrow a similar figure in the coming months. Situation is still not rosy but there is no other choice.

The political differences are so deep that it is just not possible to discuss about increasing the production level this time or in the foreseeable future. Freezing the production level is not in the agenda when Iraq and Iran are both trying to maximize the production and gain their lost market share while others just want to grow and capture more percentage of the market.

Oil prices will certainly improve due to which the best available option for OPEC is to do nothing. Satisfactory solutions for both consumers and producers can be expected. However, the organization will continue to face many more challenges in the coming few years.

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By Kamel Al-Harami – Independent Oil Analyst

This news has been read 6104 times!

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