The Oilers’ Gathering: Rosy Outlooks Despite the Gloom

تم نشره في Mon 13 June / Jun 2016. 12:00 AM
  • OPEC Convention - (AFP)

By: Leheb Ata Abdul Wahab

Iraqi Energy Economist

The latest OPEC meeting held at the Austrian capital, Vienna, on June 2nd, 2016, may not have been conclusive, given the failure to agree on a unanimous cap on production. However, the Saudi pledge not to flood the markets with additional supplies was welcomed by New York, London, Beijing, and Tokyo markets, with the current price of Brent crude hovering around the USD50 per barrel range; the highest price in months.  

(1) An Aura of Optimism:

The presence of the newly appointed Saudi Minister of Energy Khalid Falih added to the amicable spirit that dominated deliberations. The positive possibility shines in spite of longstanding issues confronting the assembly; with its two major producers, Saudi Arabia and Iran, on each other’s throats for a while now, over disparities on several political issues. Notably, this gnashing is reflective on Iraq, Syria, and Yemen, as well as on competitive oil policies. The Iranians, adamant on retaining pre-sanctions production levels of 4 million barrels per day, insist that no talk of capping production beforehand is feasible, while the hegemonic struggle builds between the two, who consider themselves arch rivals, on regional dominance and influence.

(2) A Revised Saudi Stance:

The Saudi Energy Minister unveiled the New Saudi Strategy, which contrary to common conception; does not aim to flood the market. Instead, Saudi will turn to storing spare capacities, estimated at a daily average of 2 million barrels; in order to meet sudden shifts —particularly rises— in consumer demand quantities, at any given time.

 (3) Appointing a New Secretary General:

After years of failing to reach consensus, the Conference decided unanimously to appoint Mr Mohammed Sanusi Barkindo, from Nigeria, as OPEC’s new Secretary General for the duration of three years, effective August 1st, 2016, and is to succeed current Libyan Secretary General, Abdalla Babri, in office since 2007; making him the longest serving Secretary General in the history of OPEC.  

(4) OPEC’s New Member:

Another positive development emanating from the meet, despite what is frequently circulated in foreign media, on OPEC becoming a spent Force; a derelict of the past, the Republic of Gabon, producing 250 thousand barrels per day, with a proven oil reserve of 2 billion, has just recently joined OPEC, effective next July, as the Organisation’s 14th member country.

This particular step enhances OPEC prestige, adds to its aggregate supply, and prolongs its reserve-production-ratio (R/P) by several additional years.

All in all, OPEC is alive and kicking; producing almost 40 per cent of the global output.

Furthermore, OPEC’s new market-share defence policy, keeping production levels unfettered; is indeed starting to pay off. And a salient example on that is the continued decline in the US oil production, from 2015 peak of 9.6 to 8.7 million barrels per day, due primarily to its shrinking Shale Oil production base, caused by the major culprit of the global glut in supply of oil.

Prices have gained more than 80 per cent since the beginning of 2016, hovering about USD50 per barrel. Additionally, investments in oil infrastructure are losing momentum, as the supply-demand gap stands at 1.5 million barrels daily, and could soon be bridged to below 1 million by the end of the year.

Moreover, the USD55-60price range per barrel now considered fair, with the capacity to fulfil the requirements of producers and consumers alike.  

There is a lot, however, to be done, and the journey of a thousand miles begins with a single step; here we have four.