Expert Links OPEC Supply Cut Deal to Political Concord

EghtesadOnline: Had OPEC producers not compartmentalized political disagreements from economic issues, they would not have succeeded in extending the oil production cut deal for nine more months to battle the global glut, the former head of petroleum market studies department at the Oil Ministry said.

News ID: ۷۴۱۷۸۸

29 May 2017

Likening OPEC to a "family", Mohammad Sadegh Memarian, a veteran expert in OPEC affairs and international relations, cautioned that the disintegration of the oil organization will harm all members, which explains why their "political disputes should not interfere with important decisions about serious economic matters," IRNA reported him as saying on Sunday.

Iran and Saudi Arabia are at odds over a list of critical political and security issues related to the strategic Middle East region. The two powers do not have diplomatic relations.

On Thursday, the Organization of Petroleum Countries and some non-OPEC producers agreed to remove about 1.8 million barrels per day from the market by March 2018, extending an agreement effective for the first half of this year, according to Financial Tribune.

Highlighting the comity between Saudi Arabia and other OPEC members in a meeting of OPEC ministers in Vienna on Thursday, Memarian added that the organization's top producer had adopted a wrong strategy to fight against the US shale.

"That's why they decided to adopt a new approach and reached a compromise with other members," he said.

According to the official, Saudi Arabia’s economy relies heavily on oil, yet from 2014 to 2015, Saudi oil receipts dropped by 50%, leading to severe economic pressures and deep deficits in the kingdom's budget.

"Moreover, they did not reduce expenses because of military interventions in Yemen and Syria; consequently, higher oil prices can help them stop burning their foreign currency reserves and plug the deep holes in their budget."

Underlining Russia as a key non-OPEC supplier, Memarian said, "Russia's economy is also oil-dependent and now that they have noticed the US is resolute in pumping more oil for market share, they also changed their strategy and decided to cooperate with OPEC to fight the growing burden of plummeting prices.

"Oil producers will surely consider deeper cuts if the current deal fails to push up prices," he noted.

"Oil prices are determined by a variety of factors," he said, adding that the White House has planned to sell off half of the nation’s emergency oil stockpile, equivalent to 340 million barrels, during the next 10 years, a measure which would translate into an additional 95,000 barrels in daily supplies and destabilize the already fragile international market.

"That is bad news for OPEC and its partners in a global campaign to elevate prices. US producers are keen to augment the shale oil industry as well as other types of oil and petroleum products."

Reportedly, shale explorers in the US are expanding drilling budgets 10 times faster than the rest of the world to harvest fields that register potentially significant profits even with the recent drop in oil prices.

Memarian believes that the US government has launched a psychological war against oil producers in which shale oil and strategic oil reserves serve as two important weapons.

Asked about OPEC members' compliance with planned supply cuts, the energy expert said, "OPEC countries know their decision is irrevocable and that they should proceed according to plans."