Impact of OPEC deal may be softer than expected

Baku, Azerbaijan, Dec.13

By Leman Zeynalova – Trend:

The impact of the OPEC and non-OPEC deal to cut the oil output may be softer than one might expect, Gal Luft, co-director of the Institute for the Analysis of Global Security (IAGS), a Washington based think tank focused on energy security, and a senior adviser to the United States Energy Security Council, told Trend Dec.13.

During the Vienna meeting held Nov.30, OPEC members decided to implement a new OPEC-14 production target of 32.5 million barrels per day. Later, non-OPEC countries agreed to cut the oil output by 558,000 barrels per day during the meeting held Dec.10.

Eleven non-OPEC countries agreed to reduce the oil output: Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and Republic of South Sudan.

“The decision indicates that Saudi Arabia and its OPEC partners are nearing the end of their ability to tolerate sub-$50 price. They are also concerned about future downturn in prices due to increase in Libyan production, strengthened dollar and the large discovery in the Permian basin in Texas,” said Luft.

The expert pointed out that while the market reacted with significant increases in oil prices, it doesn't mean that this is a permanent price rebound.

It simply means a bit of breathing room for an embattled global industry, Luft said.

“The real question is compliance. Oil exporters are notorious for cheating in their production numbers, so the impact may be softer than one might expect,” he added.