Will OPEC-Non OPEC nations deal be able to stabilize crude oil prices
Once again, after 16 years OPEC and NON-OPEC nations came aboard and signed pacts to limit Crude Oil productions in November 2016. Last time when the OPEC and NON-OPEC nations came together, we saw the most defining Bull Market that lasted for more than 7 years. It was during this Bull Run that we saw oil prices made an all time high of $147per bbl. Back then, when the Oil prices fell to nearly $60per bbl in lieu of the global recession, the OPEC agreed to cut production by 1.5 million barrels a day in October 2008. But the prices continued to plunge in spite of the cut until the end of 2008. Finally the Oil prices started to stabilize by January 2009 and this time around the Oil prices saw a high of $114per bbl by May 2011. Presently, once again we have seen a historic fall in Oil prices with the lowest being $26per bbl and once again the OPEC and NON-OPEC nations have come together with supply cuts to stabilize the Oil prices and in turn help revive their respective economies. What remains to be seen is whether this time around the production cut will have the same impact on Oil prices or will it fall further. Let’s find out.
Supply cut after 8 years Ö
8 years back when prices went down to $33per bbl, it urged the OPEC to cut Crude Oil production. But prior to that every oil producing nation and company enjoyed the rise of the Crude Oil prices from $57 to $147per bbl. The average price of the Crude Oil during 2007-08 was $90 per bbl considering the lowest and highest price was $33 & $143per bbl. The Oil producing companies and countries sat on very comfortable positions at that time. But, during 2015-2016 the average price of Crude Oil is $44.5 per bbl considering the highest and lowest price being $62 & $27per bbl. These companies were digging Oil for their survival. Currently from the OPEC group, Libya and Nigeria are exempted from production cuts. But right now the countries like Venezuela and Iraq are so vulnerable economically that they seem to be in no position to maintain the production cut pacts. Since the OPEC and NON-OPEC nations are not legally bound to follow production cuts, so a question arises as to how will these groups morally bound the member nations to follow supply cuts given the previous history when the OPEC countries have themselves not followed such a supply cut truthfully. Rather they will produce more Oil under the curtain of supply cut which might help stabilize prices.
Geo-Political Situation after 16 Years of Pact between OPEC and NON-OPEC Nations
The OPEC and NON-OPEC nations made a pact for supply cut after 16 years but the world has changed dramatically in these years. The geo-political situation right now is worse than 2001. Rather situation is that bad after cold war. What was started by US in the Middle East is being concluded by Russia. Russian political tactics clearly emerged winner over US and Russia with its military might clearly emerged as a Super Power on World stage. The only thing which the US achieved from the Middle East is the nuclear deal with Iran which the upcoming President, Donald Trump is completely against. It seems from what Trump has been sloganeering that either he will cancel this deal with Iran or he will do major changes in it. In any case it is not a very rosy picture for the companies investing in Iran. Clearly this will help build even stronger relations between Iran and Russia. The Russian economy is struggling big time partly because of the economic sanctions that the US has put on it following the Russian annexation of Crimea and partly because of the falling Crude Oil prices. The Russian economy depends 70 percent on the export of Crude Oil. US will try and bring down the Crude Oil prices as they have the Dollar Power but also because they want to keep the OPEC and primarily the Saudis under control. They also have enough Crude Oil beneath their lands along with Canada which they can dig for decades to come until clean energy comes into play actually. The lowering Crude Oil prices will also help keep clean energy motivating companies at bay as people wont be interested in alternative fuels. So what’s the catch here??
We believe that the US will make sure that the Crude Oil prices does not rise until the Geo-Political situation in the Middle East turns back into their favor. The New Year might see moderate rise in Crude Oil prices but largely chances are that the prices will stabilize and in near future will be on the down side only.