Oil price above $71: Is it good news for producers? – Output cuts strategy working so well

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Of course, oil price above $71 level is good news for all oil producing countries, as they are enjoying higher income, closing the gaps of borrowing money, and witnessing an increase in the value of their currency particularly the Russian rubles against other foreign currencies. Most importantly however is for them to push for stronger economic growth and more domestic investments.

This is the main lesson that oil producing countries should learn from the three years of weak oil prices and depressed economy of those countries.

The current level of $70 and above may not last long as it was too much of a jump within a short time. In other words, the oil price jumped from around $50 per barrel by $20 in less than one year, which means that it can come down at the same speed. However, this time may not happen again thanks to the real coalition between Saudi Arabia and Russia.

The two oil allies represent the cornerstone for the success behind improvement in the oil prices and pursuit for achieving their main strong objective of maintaining oil production under strict control by sacrificing their own production volume if the situation demanded so.

The current strategy of oil volume cuts is working so well that it might be extended beyond 2018. The volume cut shared between OPEC and non-OPEC countries since last year is 1.8 million barrels and they are determined to push the oil prices to reach $60 per barrel. Today however it is $10 more than what the two strategic partners had in mind, but they still maintain grip on the direction of the oil prices without losing track or control of it.

When addressing the current oil situation, the fact that the world economy is stabilizing with growth above four percent annually is a good sign particularly for the oil market which should insist for the demand to be more than 2 million extra barrels. This can satisfy shale oil producers as well as the rest of the producers. It may perhaps give more freedom of volume to play, increase and may be just reduce production cuts, should it be necessary, in order to prevent the oil prices to reach a higher crazy level of $80 and above within a short period.

Certainly, the current level of barrel price is good news for all, but will it be used wisely for improving the employment rates? Will it lead to economic prosperity, more economic reforms and less wastage of monetary resources?

email: [email protected]

By Kamel Al-Harami – Independent Oil Analyst



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