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DESPITE OPEC’s recent declaration that the global demand for oil will reach 103 million barrels by the end of fourth quarter of this year, OPEC decided to decrease production by about 1.7 million from next month. This led oil prices to reach $86 per barrel, where it will remain or even increase later this year. We know the main objective behind the move of OPEC+ to reach some sort of fixed price base and then to move on. It seems their line of thinking is price stability but on their own terms.
They are avoiding other factors that pushed the oil price down. It is to say that an oil price within the range of $80 is our target for it to be fixed, and that the world economy should be prepared. Perhaps it is time for big oil producing countries to state openly that they are looking for price recovery against their long-term investments, no matter what. OPEC+ is copying international oil companies in minimizing investments in oil exploration while maximizing return on their investments with some dividends in hand, buying back shares, and benefiting handsomely from investments of OPEC+ in the “dangerous” fossil oil. Now that OPEC+ is fully united, fully aware of the global market conditions, and reading into the supply demand figures, it is time to have some control of their destiny and play the markets themselves.
The recent decision for cuts of about 1.7 million from next month may have aroused some angry comments. Such action could lead for further infl ation and could hamper oil consumption rate. However, why should oil alone be blamed? Why not consider other global factors. OPEC is fully aware of the supply demand situation, and that demand hit 101.5 million at the end of last quarter and looks as if it could go beyond 103 million by year end.
Meanwhile, Russia is hitting a new level of exports of 8.1 million from 2020. Of course, its currency has earned a hard hit by more than 44 percent, but the oil volume is fl owing smoothly without supply distribution, despite the G7+ countries’ boycott. This again refers to the unity of OPEC+ in stabilizing the market. For the sake of clarity, we have to state the recent voluntary cuts by some OPEC members could be due to the rest of the group’s lack of access to crude to reduce or cut production, especially since the last cut of 2 million barrels, which had also shocked the market, did not eventually led to any dramatic price increase. The actual reduction did not even hit 5 million mainly due to lack of availability. Perhaps, the same will take place next month, due to not much physical reduction of crude oil globally. But again, OPEC+ is in charge of taking on aspects related to stability, fair price, and return on its investments. It is about time.
By Kamel Al-Harami
Independent Oil Analyst