The decision by OPEC and non-OPEC countries, participating in the oil output cut deal is a compromise between some countries which wanted to increase production, Francis Perrin, Senior Fellow at the OCP Policy Center (Rabat, Morocco) and Senior Research Fellow at the French Institute for International and Strategic Affairs (IRIS, France), told Trend.
The 4th OPEC and non-OPEC Ministerial Meeting was held in Vienna, Austria, on June 23, 2018. During the meeting, it was decided to boost oil production, however, the volume was not specified.
"It is a compromise between some countries which wanted to increase production, especially Saudi Arabia, and some others which were in favor of the status quo (Iran, Venezuela, Iraq). All the OPEC member states must agree on a common position in order for the organization to be able to take a decision, which is obviously not easy," said the expert.
Perrin recalled that OPEC decided to reduce its production in November 2016 and supply cuts were applied from 1 January 2017.
"These commitments were very well respected and OPEC's production was reduced by a greater amount than what was announced. On 22 June 2018 the organization decided to apply its production reduction commitments at 100 percent but not more until the end of 2018. Saudi Arabia can thus say that this meeting was successful because OPEC will increase its output and Iran can explain that its position has been validated because the organization will respect its previous commitments. Everyone is more or less happy," he added.
The expert went on to add that oil prices increased just after the announcement of the OPEC decision, which may seem surprising because oil supply will increase.
"In fact the oil markets had anticipated this decision since the latest international economic forum in St. Petersburg. At this Forum the Russian and Saudi Energy Ministers clearly said that a production increase during the second half of this year was required," he noted.
Perrin further noted that world oil demand is increasing due to growing consumption by emerging and developing countries and oil stocks in OECD (Organization of Economic Co-operation and Development) countries are being reduced.
"Production in Venezuela and Iran should go down during the second half of this year. On the other hand non-OPEC supply is increasing because of the continuing rise of US oil output."
Taking into account the new OPEC decision world oil supply and demand could be more or less balanced at the end of this year, he said.
"This should prevent oil prices from rising to $80 per barrel, a level which was reached some weeks ago for North Sea Brent, or higher by the end of this year. Brent could fluctuate between $65-75 per barrel by the end of 2018 if political tensions do not increase in the Middle East. It is of course a big ''if''."
Earlier, OPEC and several other non-OPEC producers reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November last year.
Follow us on Twitter @AzerNewsAz