Expert comments on possible extension of oil output cut
BY Trend
OPEC member countries are likely to reaffirm the decision to cut production at the next meeting in May, but it would be more a face saving pronouncement than a real policy decision, believes Kamran Dadkhah, an associate professor at the Department of Economics of the US-based Northeastern University.
“Consider the fact that Iran has increased its production. Thus, if Saudi Arabia produces less, it is taking money from its own pocket putting into the pocket of a regional enemy. Moreover, the higher oil prices resulting from production cut would help the United States companies to increase their shale oil and fracking production. Again at the expense of the Saudi income,” Dadkhah told Trend by email.
Thus, the expert believes there will be announcement on further oil output cut, but no serious cut at the next OPEC meeting.
In December 2016, OPEC and non-OPEC producers reached their
first deal since 2001 to curtail oil output jointly and ease a
global glut after more than two years of low prices.
Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei,
Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia,
Sudan, and South Sudan agreed to reduce output by 558,000 bpd
starting from Jan. 1, 2017 for six months, extendable for another
six months, to take into account prevailing market conditions and
prospects. OPEC agreed to slash the output by 1.2 million barrels
per day from Jan. 1, with top exporter Saudi Arabia cutting as much
as 486,000 bpd.
Commenting on the results of the oil output cut deal reached in
late 2016, Dadkhah noted that at present, it is difficult to assess
the consequences of the agreement or even be sure that the
agreement has been implemented.
“We cannot be sure that OPEC members and Russia did indeed reduce
their production,” he said.
The expert reminded that OPEC data (based on secondary sources)
show that OPEC production in the fourth quarter of 2016 was 33.1
million barrels a day which is above the average production during
the whole year of 2016.
“Once we have the data for the last four months (December 2016 to
March 2017), the effect of OPEC decision can be assessed more
confidently,” he said.
In the meantime, Dadkhah noted that, the oil price data, can shed light on the situation. He reminded that before the OPEC decision, the WTI price was below $50 per barrel and on the decline. The OPEC decision seems to have reversed the situation- oil prices have been above $50 till recently. However, the effect hasn’t been substantial and it seems that in early March it has witnessed a decline, according to the expert.
“Thus, the rise in oil prices may have been based on
expectations rather than actual output cut,” Dadkhah said.
He also noted that we should remember that after the OPEC decision,
Iran has increased its production to achieve its pre sanctions
level of exports.
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