Expert warns OPEC of pushing prices too high

Oil&Gas Materials 27 February 2018 10:47 (UTC +04:00)

Baku, Azerbaijan, Feb. 27

By Gulgiz Muradova -Trend:

The OPEC+ countries must be very careful not to push prices too high because this will revive the North American oil industry, Gal Luft, the co-director of the Washington-based Institute for the Analysis of Global Security, told Trend.

"This could result in a devastating glut which they are not able to survive. This is particularly true now since the recent tax reform in the US, which provides more advantageous corporate tax rates, will avail the energy industry with more money for domestic investment," said Luft.

He reminded that Exxon alone expects to spend $50 billion in US projects over the next five years.

"For OPEC this is all a very delicate play and I assume they will be extra careful in their decision making," he said, commenting on the possible extension of the oil cut deal.

OPEC and non-OPEC countries that agreed to the oil production freeze last year are willing to cooperate after the agreement expires, that is, from 2019, according to Saudi Minister of Energy, Industry and Mineral Resources Khalid A. Al-Falih. In this regard, representatives of the largest oil-producing states believe that it is premature to discuss an exit from the pact.

In addition, in February, OPEC improved its forecast for the growth of world oil demand in 2018 to 98.6 million barrels per day.

Luft stressed that every oil exporting country has different economic and political circumstances that lend themselves to different preference when it comes to oil prices.

"Some, like Iran and Venezuela, need three digit fiscal break-even price while others, like Saudi Arabia, are quite content with high-two-digit price. It is clear that none could agree to a level lower than what is currently exhibited by the market. So I predict they will monitor the situation and will not agree on their next steps before the end of this year," he said.

They, according to the expert, will also monitor closely the decline of the dollar as a weaker dollar creates upward pressure on prices.

"If the US dollar continues its decline I predict OPEC will want to offset the decline by extending the cuts," he said.