Non-OPEC producers to support OPEC.
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Umrao Singh umraoz.wordpress.com
Written for: Lars-Magnus Carlsson
www.thephilippinepride.com?utm_source=rss&utm_medium=rss Wednesday, 07 December 2016
In a move that is clearly meant to target the massive glut in the global oil markets, OPEC had succeeded, after many aborted attempts, to reduce the out of its member countries with effect from the 1st of January 2016. The initiative that was taken 10 days ago was called the OPEC-14 initiative and had fixed the limit of output to 32.5 million barrels per day.
Thus, the Nov. 30 decision had reduced the output of crude oil by the OPEC cartel by 1.3 million barrels a day which was quite an achievement considering that many member countries like Iran, Iraq and Saudi Arabia were traditionally opposed to such reductions in output due to their own reasons.
There was an urgent need for this strategic step since the low prices of oil had caused severe financial constraints in the finances of the governments of the nations that were significantly dependent on the oil revenues to make both ends meet.
The meeting between the non-OPEC and OPEC members was held at Vienna from Saturday, 10th December and was described by the Secretary General Mohammed Barkindo as proceeding on a conducive and positive atmosphere.
The President of the OPEC, Mohammed bin Saleh al-Sada, who is the Energy Minister in the Qatar government said yesterday that, till now, non-OPEC oil producing countries had agreed to their proposals to curtail the production of their oil in view of the initiative by OPEC; but, the target envisaged by OPEC were not complied to fully.
While OPEC had hoped for an all-round cut of 600,000 barrels a day, they had agreed to cut their oil production by 558,000 barrels per day which was also quite encouraging.
The deal to reduce the oil output by the non-OPEC oil producers was quite significant since it would result in higher investments by the industrial sector while rationalizing and balancing out the markets according to Khalid Al-Falih, the Saudi Artabian Minister for Oil.
This market consolidation should start taking shape in the near future and cause the gradual disintegration of the glut in the oil markets over a longer term, he stated. While terming Saturday’s decision historic, he stated that this was a result of the meeting at Vienna where the OPEC had with non-OPEC oil producing countries including Russia who had announced a cut of 3,00,00 million barrels per day on November 30.
The meeting at Vienna was attended by the following non-OPEC producers of oil:
• Russia,
• Kazakhstan,
• Azerbaijan,
• Malaysia,
• Bahrain,
• Sudan,
• South Sudan,
• Oman,
• Brunei
• Mexico, and
• Equatorial Guinea.
Russia was the co-Chairman of the meeting and were expected to be the major country that would effect a sizeable reduction in their production levels the Secretary General of the OPEC, Mohammed Barkindo remarked.
The resurgence of the oil producers that included OPEC and non-OPEC entities was a unique show of solidarity amongst the oil producing nations because all of them stand to gain from higher revenues and rationalized markets where the rates of their crude will not be pulled down just because of flooding of the markets by surplus oil; this was the opinion expressed by Alexander Novak, the Energy Minister of Russia.
Even Russia was supporting the OPEC-14 initiative wholeheartedly in view of the crisis of very low market prices of the oil in the recent years; the budgets of some nations like Saudi Arabia and Russia had been severely affected by the glut.
But, there is a wait and watch policy doing the rounds among observers, analysts and experts since the traditional habits of the OPEC members have to be curbed if this initiative is to have an impact on the prices of oil worldwide; they normally exceed the allotted quotas leading to the continuance of the glut in the markets.
There is a monitoring committee in place among the OPEC cartel but whether it is able to control the production to agreed levels is still to be seen.
The future of the oil markets may be at stake.
The after-effects
The slide of oil prices that set in from early 2014 has resulted in steep lows of near $40 per barrel; the current price is hovering around $51.5 as of Friday which shows an increase of about 6% since the OPEC-14 initiative.
The projection that the United States may stand to gain by this initiative is also being studied since the US oil becomes achievable by the Asian consumers; moreover, the quality of crude oil from the US is known to be better while the production cost in the US is also lower making it a good proposition to think of Asia as a market.
But, the Saudi Arabians would like to defend their Asian market by cutting their supplies to Europe and the United States.
Concluded.
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