Oil is in good hands

Kamel al-Harami
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The newly formed OPEC+ alliance between OPEC members and some of the world’s major non-OPEC producers, such as Russia and Mexico, has reflected positively on oil markets and helped stabilize prices.

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Even in light of the Covid-19 pandemic, its complications, and its latest variant Omicron, this alliance remains a force to reckon with as it joins the world’s second- and third-biggest oil-producing countries, with an estimated combined output capacity of 22 million barrels per day, equivalent to the total daily consumption of the United States.

This humungous production capacity unnerves oil consumers, especially when considering that everyone is looking on to 2050 – when the world is set to relinquish all environmentally harmful emissions such as coal, oil and gas.

According to OPEC+’s vision, the world is not yet ready to meet the abovementioned target in the absence of alternatives and given the increasing use of coal coupled with a 9 percent spike in consumption, particularly in China and India. The other sticking point is gas, with lack of coordination in gas markets and Europe's exigency for Russian gas, which supplies about 39 percent of Europe's total consumption.

Added to the above is the supply and utilization mechanism of the new gas pipeline that does not pass through Ukraine, i.e., cutting out Ukrainian territory from the route taken by Nord Stream 2, so that it flows directly into Germany, which is being continually threatened with halting supplies if it does not go along with Russia.

All these reasons combined play into the interests of the oil organization, which has reached an understanding and conviction that OPEC+ members must agree fully and comprehensively -- without any disagreements -- before making any decisions, including agreeing on appropriate production rates, market supplies, and maintaining a fair price per barrel of oil, according to the requirements of the oil markets and final consumers.

There is also the current experience and the agreement implemented this month by the oil organization to increase production in light of increasing coronavirus infections, and the impact of land and air transport sectors on global oil demand. However, the decision was deemed appropriate and acceptable even by the US administration, which recently began calling on oil companies to hike domestic oil production, with the increase in their asset value and ballooning cash flows, since these companies, specifically shale oil producers, have “mountains of cash,” according to US newspapers.

Another example of OPEC+’s cohesion is the agreement to increase the basic quantities of some members of the organization, namely Russia and Saudi Arabia to 11,500 million barrels per day, and the UAE to 3,500 million bpd. It was beyond anyone’s dream that OPEC members could agree on new production targets by increasing baseline production.

This is further evidence that most members are unable to increase their oil production, and that they have entered into a stage of decline. However, this does not apply to Iraq and Iran at present, although their production capacities are still being researched and looked into.

Oil is in safe hands, and it is difficult to see a deterioration in the price per barrel, rather, an increase in its value, albeit in stages, in order to preserve consumers’ finances and safeguard them against inflation. The current price per barrel hovers around $70-75, which is considered appropriate so long as OPEC+ countries achieve savings in their financial budgets. This is the desired target and objective from the perspective of the owners of different types of oil.

This article was originally published in, and translated from, Kuwaiti newspaper al-Rai.

Read more:

Beyond oil: Unity and development in the gulf

OPEC’s view on climate change

How they think and how they are

Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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