Need of the hour is a ‘ super Opec’

There are several indications that Opec member- states and non- Opec oil producing countries will extend — may be for the next decade — the output cut agreement meant to maintain fair prices. And especially as these countries have reaped the fruits of their agreement, which brought prices back to modest levels.

However, the circumstances of the global oil market are changing, and this requires changing the tools and means that Opec countries have dealt with in the past. The structure of the organisation adopted since its inception nearly 60 years ago is no longer effective for many reasons.

These include the emergence of large oil producing countries outside of it, such as Russia and Norway, as well as the new discoveries and advanced technological developments that have changed oil extractionmeans.

So, it is necessary to restructure for it to become a “super Opec” by adding new members or cooperating closely with other oil- producing countries, without which Opec would not have been able to influence production and price levels.

Kazakhstan, for example, seeks to join Opec, while Russia endeavours through its oil, political and strategic weight to work closely to stabilise themarkets.

Thanks to the rapid and substantial gains achieved by relatively high prices in recent months, thus boosting the economic situation in oil producing countries, more than a dozen oil producers from outside the organisation have become part of the agreement to support prices. Indeed, this is the key factor that has maintained current price levels. Thus, some 24 oil- producing countries are cooperating with the cuts, meaning that the oil “cartel” is no longer limited to Opec members alone. There is a “Super Opec” to protect the interests of oil producing and exporting countries. This is regardless of the contradictions between these countries on many issues, as they have a common interest of keeping oil prices relatively high to address the development and social issues facing them.

What about the consumer countries and those, which have their oil and gas production doubled thanks to new technologies? Such as the US, which leads theworld in shale oil and gas production.

The US shale oil production is expected to rise to 6.76 million bpd this year, bringing its total production to 12 million bpd, which will lead to increased disruption of supply and demand chains, and thereby affecting prices.

Hence, a rapid step has been taken by the news up er-Opec. Officials of the producing countries said they are ready to make further cuts to restore balance in the oil market, which is expected to occur by the end of this year.

The vision is clear and the scales tilt in favour of the secondoption. This is backedby the fact that theUS is becoming the world’s largest oil producer, overtaking Russia and Saudi Arabia, thanks to shale oil, which means it has an interest in continuing relatively high prices.

However, the direct impact on the market balance will result from the same factors of supply and demand. And here lies the role of “Super Opec” to maintain the balance by controlling production levels and renewing the output- cut agreement.

■ DrMohammad Al Asoomi is aUAE economic expert and specialist in economic and social development in theUAE and the GCC countries.