The OPEC meeting last Thursday ended with some uncertainty surrounding the future oil prices. From OPEC’s decision, it can be understood that the meeting did not result in any statement or conclusion. After delaying the scheduled meeting by four days, the outcome does not seem to be a firm and comfortable decision. The oil markets did not react positively, and retained the oil price at $83 per barrel, perhaps reflecting the disagreement with the group, even though it did agree to cut production by an additional one million barrels more than the voluntary Saudi cut of one million barrels, and with Russia committing to additional cut of 200,000 barrels, making it 500,000 barrels per day.

Therefore, the combined Saudi and Russian cut is 1. 5 million barrels, along with a cut of 163,000 barrels by the Emirates, 135,000 by Kuwait and 200,000 barrels per day by Iraq. This is a total reduction of two million barrels, with the aim of raising the oil prices, while facing the increased supply and production by the USA to a new level of 13 million, Canada with 4.5 million, and new volumes of three million barrels per day from Brazil. Therefore, OPEC+ has to curtail its own production to reach a price level that suits its own local economies, not the global ones. OPEC+ member states are going to need higher oil prices to cater for expansion, and huge and ambitious overseas projects aimed at being part of the global economy.

Projects such as the World Cup and Expo 2030 in Saudi Arabia demand more income in order to be part of the global economy, perhaps paving the way to move away from a single source of income, which is oil. The decision last week by the oil-producing group to further reduce supply until June seems to be a long time to read the oil markets, as it depends highly on the weather conditions in the coming winter months, which we hope will be cold so that the demand rises. Oil producers need good news related to an increase in oil prices, as the current level of $83 per barrel is not suitable anymore. The USA is not keen to witness further escalation in oil prices. It must tackle the inflation, which seems to have gone down, but it does not want any increase in gasoline prices, with the election on the horizon. OPEC+ did come out with some decisions, despite the wide disagreement with its African members like Angola, Nigeria and Congo, which refused any cuts in their production, and with some unable to even achieve their agreed quota. OPEC and its new partners must manage the oil supply and must meet its local financial requirements.

Disagreements may prevail at each and every meeting, but the question is why it took it four days to come up with a “wishy-washy” decision, leaving its members to cut productions as suitable. Now let us hope that OPEC+, with its cut of two million barrels will help in stabilizing the oil prices. We hope the price will get close to $90 a barrel with the help of the weather conditions. This is the dream of oil-producing countries.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]