OPEC Sees Oil At $70 A Barrel – Will This Hold?

OPEC Sees Oil At $70 A Barrel – Will This Hold?

For about ten years now, Saudi Arabia has served as the voice of reason within OPEC, pushing against members like Venezuela and Iran who have always insisted on higher oil prices. It now appears that Saudi Arabia may no longer be playing the role of the peacemaker.

 

OPEC-led production cuts have boosted crude prices to levels double than those two years ago, which has also brought bloated stockpiles back to ‘nearly’ normal levels. Even so, Khalid Al-Falih, Saudi Arabia’s Energy Minister wants to go a step further. He believes that production cuts should persist for the entire year, even if it results in a supply shortage, commenting that, “if we have to overbalance the market a little bit, then so be it.”

 

The abrupt change in his stance could perhaps be a reflection of the pressures that Saudi Arabia has been facing recently, as its Crown Prince, Mohammed Bin Salman, has begun sweeping economic reforms. “If you’re Mohammed Bin Salman and trying to radically reinvent your country” then “you need a certain price to make it work,” stated Head of Commodity Strategy at RBC Capital Markets LLC, Helima Croft. While previously satisfied with prices at $60 per barrel, Al-Falih now sees $70 as the new crude trading benchmark, according to an individual familiar with the matter, who for privacy reasons has asked to remain anonymous.

 

For the past year, Russia and OPEC – once known as the “fierce oil-market rivals”- have initiated a coalition between twenty-four producers in an attempt to clear the supply glut that was proudly made in America. Their prime objective, which was to reduce oil inventories to their five-year average is finally at hand. Now, their next objective seems to be to encourage fellow producers to keep a lid on production. The United Arab Emirates want to prolong the ongoing partnerships with Russia and other non-OPEC allies well beyond the expiry of the production cut agreement. “My hope is for it to last forever,” boldly stated Suhail Al Mazrouei, United Arab Emirates Energy Minister. He believes that if everyone works together they can be prepared “for any unforeseen surprises in the market, to avoid any glut or any shortage of supply.”

 

All in all, we’re seeing a recovery from the past several years of oversupply and there’s no denying that OPEC and its non-OPEC allies have played a significant role in this recovery. While oversupply may no longer be an issue as soon Q2, it’s obvious that some nations want to prolong production cuts to at least the end of this year, and potentially even longer. “The group of 24 countries together are making a contribution to the supply and demand balance,” commented Suhail Al Mazrouei after his speech at the International Petroleum Week conference. “Russia is a critical country in this group, as well as Saudi Arabia, as well as the U.A.E., as well as many other countries.”

 

As OPEC’s current President, Suhail Al Mazrouei says his role is to “try to draft a charter of how we are going to continue working together, for the sake of better economic growth and for the sake of ensuring that we have adequate supply.” Apparently, a draft already exists, but OPEC isn’t ready to release it just yet, Mazrouei summed up. Ministers will review, talk about and come to an agreement on the charter later in 2018, but he also said that that may not be feasible.

 

Who knows where the oil-saga will go from here, but one thing’s for sure, if you don’t want to miss out on the updates, stay tuned!

 

 

Disclaimer:
This article is for educational and informative purposes only and should not be considered as investment or trading advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.99% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Find more details about risk here.

eFXGO! Official iOS Mobile App Free • available on app store

4.5/5