Strong, united OPEC key – Compliance boosts oil prices

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Kamel Al-Harami

CAN the oil organization remain strong and manage the oil market by itself or does it need strong support from the outside to lead and influence the petroleum market?

This is the hard question that needs to be answered in consideration of the experience of recent months with the oil prices improving and remaining strong within the range of above $53 per barrel for over 14 months.

The last agreement of the oil organization in Vienna to reduce production came after political pressures were imposed on Iran to comply and stick with rest of the oil producers in order to reach a consensus. Without the involvement of the biggest oil producer Russia, we may not have reached any agreement and the barrel cost would have remained within the $40 level.

The moral support of non-OPEC members, even though they may not reduce production, is enough to convince the global market. On the other hand, Russia is committed to the reduction, if not freeze its oil production without going beyond 11.6 million barrels per day.

In addition to the non-OPEC factor which is making OPEC strong, the full compliance of Saudi Arabia, Kuwait and the United Arab Emirates is a main factor in keeping the oil prices strong. These three producers are ready to make more cuts if necessary and are pushing hard to prove on daily basis their willingness to reduce production if required. In fact, Saudi Arabia is ready to reduce production even further to go below 10.45 million barrels per day in order to maintain unity within the oil organization.

The whole atmosphere is different from the past agreements. This time OPEC must adhere to its accord. Some may have to sacrifice more volumes in order to retain the unity. They must continue to do so as long as they are rewarded financially on daily basis. The misery of the last two years is gradually fading.

More the talks and evidences of compliance, the harder the barrel becomes.

Meanwhile, the catalyst behind the success of the organization came from outside OPEC and not from within. OPEC provides about 40 percent of supply to the global market, which consumes close to 95-96 million barrels per day.

In the future when there is higher demand for OPEC barrels, outside help may not be required then but it is definitely necessary now.

Email: [email protected]

By Kamel Al-Harami

Independent Oil Analyst

 

This news has been read 6774 times!

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