Oil output deal is done, OPEC now in agreement
OPEC’s meeting last Thursday was quick and fast, triggering an increase in oil price by more than $3 per barrel in less than three hours of the agreement.
Yes! The meeting ended quickly but after more than ten months of meetings behind closed doors to finally arrive at such a compromise by all. Therefore, it is a win-win for all oil producing countries including the international oil companies. Their share value has gone up and there is hope for digging more wells. The barrel cost is now nearing the $53$54 level.
The agreement calls for OPEC to reduce production by 1.2 million for six months starting from January 2017. If this works smoothly, it could be extended for few more months. Non-OPEC producers also have to pitch in additional 600,000 barrels, including 300,000 by Russia and 300,000 by Kazakhstan and Oman per day. In reality, it is a reduction in production of 1.8 million barrels under the hope that the overall surplus will reduce genuinely and substantially by the end of the third quarter.
This is the best that the organization could hope for now, at a time when every member is fighting for a bigger share in the market while the shale oil industry is still waiting for the right price to come up again. This is why OPEC must monitor shale oil’s gradual increase in production so that the alarm can be raised and further action can be taken to avoid the reputation of the recent past.
An agreement has been signed by all 13 members following the exit of Indonesia as the net importer of oil. Now it is time to test the waters and see who will perform fully and who will lag behind.
It is an achievement as well as a hard lesson learned. We all had lost hope and that should not happen again. Let us look forward.