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Will producers be able to achieve stronger oil markets on possible oil output cut?

  • 25/10/2016 (03:25)
Having reached a preliminary consensus to cut oil production for the first time in eight years at the Algeria meeting, OPEC and non-OPEC oil producers like Russia are currently conducting further talks on the issue. Following the Russia and Saudi Oil Ministers’ unofficial meeting in Riyadh on Sunday, Russia’s Oil Minister Alexander Novak reportedly stated that they discussed specific production limits for Russia and other nations that would agree on the accord.

According to the cartel’s preliminary consensus reached on September 28 in Algeria, the cartels’ oil output will be reduced to a range of 32.5-33.0 million barrels of oil per day (bpd) compared with the group’s estimated oil production of 33.24 million bpd. However, Iran was allowed to increase its output. Iran is refraining from any decrease or freeze in its oil production as the country aims to reach pre-sanction levels of more than 4 million bpd. Iran has been producing around 3.6 million bpd in the last few years.

Nigeria and Libya are other members that are exempt from any production cuts as their production had been already halted due to militant attacks in the past years and the countries are seeking to increase their production in order to offset their previous losses. Moreover, their economies are not in a good shape.

In addition, Iraqi oil minister Jabar Ali al-Luaibi, the group’s second largest oil producer, recently reported that they also should be excluded from the production cut plans, pointing to their declining market share due to the wars in recent years. Currently, Iraq is producing 4.77 million barrels of oil per day (bpd). The Minister reportedly said that they would be producing 9 million bpd if the wars did not happen.

Previously, Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih stated during the World Energy Congress held in Istanbul that crude oil prices could rise to $60/barrel by the end of this year if the oil producers agree to cut production.

However, looking at the other side of the production issue, the latest data showed that rig counts in the US keep increasing and shale gas producers started to return to the market after crude oil prices hit the $50/barrel threshold, which may further cloud the cartel’s higher price targets.

So far, Russia and Saudi Arabia seem to be pioneering a possible cut on their output, however the market players are questioning whether their efforts will be sufficient to stabilize the global oil markets in the midst of increasing rig counts in the US. Even if the cartel reaches a deal at its meeting in Vienna on November 30, oil analysts are not certain whether they can achieve what they are targeting in terms of prices.
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