OPEC’s Fate De­cided By Non-OPEC Mem­bers

Iran News - - FRONT PAGE - By: Hamid Reza Naghashian

It seems the OPEC is los­ing its power in pric­ing be­cause of rift among its mem­bers and role of non-OPEC oil pro­duc­ers; even its de­ci­sion to cut the oil pro­duc­tion has no im­pact on the mar­ket and fate of its de­ci­sions on oil price mostly de­pends on the big pow­ers’ de­ci­sion.

OPEC meets on Thurs­day in Vienna, fol­lowed by talks with al­lies such as Rus­sia on Fri­day. OPEC’s de facto leader, Saudi Ara­bia, has in­di­cated a need for steep out­put re­duc­tions from Jan­uary, fear­ing a glut, but Rus­sia has re­sisted a large cut.

Saudi Ara­bia has in­di­cated it wants the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries and its al­lies to curb out­put by at least 1.3 mil­lion bar­rels per day, or 1.3 per­cent of global pro­duc­tion.

Riyadh wants Moscow to con­trib­ute at least 250,000-300,000 bpd to the cut but Rus­sia in­sists the amount should be only half of that, OPEC and non-OPEC sources said.

Rus­sia’s TASS news agency quoted an OPEC source as say­ing OPEC and its al­lies were dis­cussing the idea of re­duc­ing out­put next year by re­vert­ing to pro­duc­tion quo­tas agreed in 2016.

Such a move would mean cut­ting pro­duc­tion by more than 1 mil­lion bpd. Saudi Ara­bia, Rus­sia and the UAE have raised out­put since June af­ter Trump called for higher pro­duc­tion to com­pen­sate for lower Ira­nian ex­ports due to new U.S. sanc­tions.

But de­spite this move, the oil price fell fur­ther yesterday which can cre­ate more con­cern for oil ex­port­ing coun­tries over the price of their com­mod­ity.

Ac­cord­ing to re­ports, OPEC is wait­ing for Rus­sia’s de­ci­sion on cut­ting its oil pro­duc­tion. Rus­sia has agreed to cut its oil pro­duc­tion but be­cause of the mar­ket and its other ri­val U.S., the Rus­sians are still un­de­cided and Rus­sian En­ergy minister has re­turned to Rus­sia to con­sult with the Rus­sian Pres­i­dent.

If Rus­sia does not join the oil pro­duc­tion cut, the OPEC’s de­ci­sion will be tooth­less and it will not save the oil mar­ket from more plunge of the prices.

Once the main player of the oil mar­ket, the OPEC is now un­der full in­flu­ence of the two gi­ant oil pro­duc­ers, Rus­sia and the U.S., which seems they have now more to say in the mar­ket es­pe­cially for im­pacts on the oil price.

And now all eyes are on Rus­sia to show its sol­i­dar­ity with the OPEC, other­wise the plunge in the oil price will con­tinue. Re­cent chaos in the world stock mar­kets and China’s eco­nomic strug­gle have also helped the OPEC to fail in con­trol­ling the oil mar­ket.

De­spite OPEC de­ci­sion to cut its oil pro­duc­tion, some of its mem­bers op­pose it and they may stick to their quota be­cause of their eco­nomic con­di­tion.

Iran has of­fi­cially re­it­er­ated it will not ac­cept any change in its quota in the sanc­tions era and Libya and Venezuela have the same at­ti­tude. Qatar is to leave the oil car­tel which is get­ting tooth­less be­cause of its mem­bers’ pas­sive­ness and obe­di­ence to the big pow­ers like the U.S.

The un­sta­ble eco­nomic sit­u­a­tion in some OPEC mem­ber states have made them hes­i­tate in cut­ting pro­duc­tion be­cause they need more oil sales to help their ail­ing economies.

Bloomberg re­ports that Rus­sia only wants to cut out­put by 150,000 bpd, a rather mod­est amount, which would mean more heavy lift­ing by Saudi Ara­bia to bal­ance the mar­ket. Rus­sia ap­pears will­ing to go along with some sort of re­duc­tion, but it also does not feel the same ur­gency as the Saudis, par­tic­u­larly be­cause of the dy­nam­ics of how its cur­rency fluc­tu­ates with oil prices, mak­ing lower prices much less painful com­pared to Saudi Ara­bia.

So the fate of con­tain­ing the oil price plunge is in hands of Rus­sia which wants to take ad­van­tage of re­cent rift among OPEC mem­bers with the U.S. And later all have to wait for the U.S. re­ac­tion to the fi­nal de­ci­sion of the OPEC. The U.S. only wants cheap oil mar­ket to boost its econ­omy no mat­ter other economies col­lapse.

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