Oil markets in need of deeper production cuts – Current rate ineffective, not workable
This news has been read 4766 times!
Immediately after the OPEC and non-OPEC producers agreed to extend the period of current oil production cuts by another three months until the end of the first quarter of next year, the oil prices hit a low of below $50 per barrel. The main reason for this unexpected decline is that the oil producers did not opt for cuts higher than the current 1.8 million barrels per day.
OPEC along with Russia must go for higher genuine oil reductions, as the current reduction rate is ineffective and not workable. Moreover, all oil producing countries must stick to the reduced oil production rate.
Frankly, it is a hard task to monitor the production cuts and the volume of each OPEC and non-OPEC member like Russia. Do we really know whether Russia is reducing its production rate by 300,000 barrels per day or if all OPEC members are reducing their production rates fully to ensure 1.2 million barrels of reduced volume are achieved?
There is no doubt that Kuwait by all means has been adhering to the agreed reduction rate. It could perhaps be mostly due to the operational problems related to shutting down of Shuaiba Refinery which had production capacity of 200,000 barrels, as well as decrease by possibly 300,000-350,000 barrels due to upgrade operations in two refineries — Mina Ahmadi and Mina Abdullah.
Saudi Arabia has also been reducing its exports. However, rest of the producers has been reducing their production by a very small rate such that the total reduced volume may not reach the agreed volume of 1.2 million barrels.
The other factors that have been weakening the oil prices and causing them to reach the current level of below $48 per barrel include the high oil stock. All producing countries have been selling from their overseas stocks which had been building up until January 2017.
Of course, the surge in the USA shale oil production is a huge factor in the lowering of oil prices. In fact, the oil prices stabilizing close to $50 per barrel has given life to shale oil.
Since shale oil is getting out of control but is here to stay while the world crude oil inventory is still high, the only solution for the oil organization is to increase its crude oil production by another 200,000 barrels per day.
The total cuts of 2 million barrels will only be effective if all oil producing countries fully adhere to the decision of reduced production and actually implement it. This is because the oil markets are in need of a good order for further reductions.
e-mail: [email protected]
By Kamel Al-Harami
Independent Oil Analyst
This news has been read 4766 times!
