Kuwait News

OPEC Plus: Minimum increase of 500K bpd

A total of 23 oil producing and exporting countries ended their meeting last Thursday with a decision to increase minimum production by 500,000 barrels per day. The minimum volume that they could agree to, under today’s circumstances, is in consideration of the various challenges facing OPEC and its new partner Russia, as well as other non-OPEC member states.

Kamel Al-Harami

The meeting last Thursday ended in total agreement, after two days of delay in reaching a sound resolution that was acceptable to all 23 members. In the midst of various scenarios for the extent of production cut ranging from two million to 1.5 million, they finally agreed on 500,000 barrels per day from next month, with regular monthly meetings/observation.

The first question that comes to mind is regarding how such volume of 500,000 barrels will be divided among 23 active members of 20,000 each, or additional income of $1 million per day for each member, as well as to measure such tiny volume in daily crude oil production.

Will it be done to cover over production of “cheating” scenarios over the established quota? It is hard to ask members to fully adhere to the oil production quota. Let us take for example the USA shale oil producers who have taken the same volume from OPEC-plus at a very attractive level $ 45-$47 per barrel, while Iraq, Nigeria are in desperate need of any additional income, in comparison to a rich member that has more sources of income, or still have surplus in their annual income.

So, overproduction will continue, as long as the prices are at a comfortable level, and the shale oil producers are surviving and competing with OPEC and its plus partners. An agreement was reached to increase production by 500,000 barrels per day from next month, and every member will enjoy an additional income of one million per day from next month, with regular monthly monitoring.

Not all members will fully adhere to its production quota, with current attractive oil prices hovering around $ 50 a barrel, and with the attempt to gain more income, as long as shale oil is in direct competition with OPEC oils. So, instead of taking some shares of oil markets by shale oil, OPECplus producers prefer to cheat and gain such volume and price from their competitors, and decrease their financial deficits. Surely, such an argument makes sense… let US shale producers suffer too. In the end, no matter how fragile last week’s OPEC-plus agreement was, it resulted in the hardening of oil prices for some time.

However, for the oil price to hoover around $50 per barrel is not sustainable, as it is too tempting for all OPEC-Plus members. This is another headache.

By Kamel Al-Harami Independent Oil Analyst


Source: Alanbaa

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