By Sonny Atumah
Analysts have tried to fathom the meaning of the glances of the now to be formed OPEC plus(+)in global petroleum. It is not from the blues that OPEC+ had dropped.
Two countries: Saudi Arabia and Russia of the 14-member Organisation of the Petroleum Exporting Countries, OPEC and 10-member non-OPEC respectively, led their groups to forge a front to confront United States shale producers for a production freeze to shore up crude oil prices in December 2016.
The two countries are at it again, and the intentions are quite clear as they portray themselves as global market lubricants. Does the formation of another petroleum super cartel mean a death knell for OPEC? One would want to believe they are capitalizing on global geopolitics and volatilities to become elixirs of global energy.
OPEC and non-OPEC members pledge took out 1.8 million barrels per day, mbpd from the market. That decision saw 1.2 mbpd out of the market from OPEC as against 600,000 from non-OPEC. Saudi’s production cuts were close to 600,000 bpd every month through the duration of the agreement out of 1.8 mbpd of total OPEC+cut. Russia cut 300,000 bpd out of 560,000 for total non-OPEC cuts.
It indeed, boosted oil prices by about 40 percent. OPEC’s 14 members control 35 percent of global oil supplies and 82 percent of proven reserves. The 10 Non-OPEC members, including Russia, Mexico and Kazakhstan, those shares increase to 55 percent and 90 percent respectively.
The two countries that brought their groups in alliance are securing a bonding through the OPEC+. We may look deeper to know who is stoking the fire. Saudi Arabia, a strong ally of the United States had supported a cut in crude oil production output as the American shale that appeared to be invulnerable to high production costs, increased global glut which ignited the great price of crude crash of 2014.
The Russian are strong proponents of the lower for longer principle of pricing in the crude oil business. They believe it could prevent the abandonment of crude usage earlier than expected for renewable energy sources.
Russia may have been converted by Saudi Arabia for the tune being sung today. Again, Saudi Arabia may have used this posture as a landing pad in the pressure from the United States.
Many believe the change in policy by Saudi Arabia may be to mend fences with the United States that roundly accused it of complicity in the gruesome murder of fiery Saudi journalist, Jammal Khashoggi in the Saudi Consulate in Istanbul, Turkey.
Observers believe the sudden turnabout may be an appeasement of the powers that be in Washington who may become beneficiaries of the recompense, for Saudi Arabia to pump more crude oil into the global market. The United States may as a result abandon the manhunt for the killers of Khashoggi who paid the ultimate price in the line of journalistic duty recently. It is again, a political undercurrent that may have made the Saudis use increased crude oil inventory as leverage.
Experts have said that Saudi Arabia’s influential Minister of Energy, Khalid Al-Falih considered to be an oracle and a master has been at it and on top of his game. Al-Falih on a familiar terrain is one of the most influential persons on the global oil market that traders, investors and governments keep close tabs on his comments, which can spark serious price changes to global oil.
He has worked his entire life in the oil sector, having gone through all corporate hierarchy levels of his country’s oil giant, the Saudi Aramco, and after serving as the company’s chief executive, took over the leadership of Saudi’s oil sector. Al-Falih’s team up with Russian counterpart Alexander Novak to form the OPEC+ means taking charge of global oil to abate the uncertainties that may have been foreseen for 2019. Taking charge is to be ready to act promptly and effectively to counter uncertainties resulting from trade frictions,pressure on developing countries currencies including strong dollar and weak emerging economies.
A world economic slowdown could hurt oil demand and if demand is low, oil markets will respond. On the supply side, problems with disruptions of production including sanctions on Iran, and production outages from Venezuela, Libya and elsewhere could hurt global economies. Khalid al-Falih, a fortnight ago told the Russian News Agency, TASS, that they are rebalancing global crude for price stability. The meeting last June between Saudi Arabia and Russia might have stamped a warehousing of an oil super cartel in Vienna for global petroleum control.
Al-Falih and Novak had discussions during the Saint Petersburg Economic Forum in May and also met in Moscow during the opening of the World Cup to agree on the OPEC+ meeting scheduled for December 7, a day after the regular OPEC meeting in Vienna, Austria. OPEC has its Secretariat in Vienna but OPEC+ revealed that many members outside OPEC would prefer belonging to another body outside OPEC, but have expressed the desire to work closely with OPEC, Al-Falih was quoted as saying.