BAKU, Azerbaijan, Dec.6
By Leman Zeynalova – Trend:
OPEC would make a grave mistake by keeping its present output level, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
Sources say that during OPEC’s December 5 meeting in Vienna, it was recommended to increase the cuts from 1.2 million barrels per day to 1.7 million barrels per day.
“The present situation on the world oil market is not bad for producing countries: world oil demand is increasing and the price of Brent is about $63 per barrel. But OPEC knows perfectly well that there are some important problems now and in the near future: the softening of world economic growth in 2019-2020, which leads to less growth in oil demand; strong trade tensions between the US and China, the two economic superpowers of our time, which are contributing to the softening of economic growth; and the continuing rise of US oil production thanks to unconventional crudes produced in this country. It means that there are some significant bearish pressures on the oil markets, which could have a negative impact on oil prices,” said the expert.
Perrin said OPEC countries think that it is important to act now in order to be proactive rather than to wait and see, which could be detrimental to the interests of producing countries.
“This step is necessary because, with a weak growth in world oil demand and a rather strong increase in non-OPEC supply, OPEC's required production and market share are being reduced.
It is difficult to say today if this will be enough to maintain the oil market balance and oil prices. The decision has yet to be formalized; the 10 non-OPEC countries which cooperate with OPEC since the end of 2016 will have to discuss this proposal; if all this process is OK this output reduction will have to be effectively applied; and much will depend on the evolution of world economic growth and of the US-China trade war, which has a strong impact on oil prices; US oil production is also a key factor as its rise is continuing even if the rate of its growth is slower than in the recent past,” he said.
To sum up, the expert believes that additional 500,000 b/d production cut is necessary but perhaps not sufficient.
“But it would be a grave mistake for OPEC to maintain its present production level in this difficult energy and economic context. Oil producers must act now,” he concluded.
In late 2018, OPEC and a number of countries outside this organization (OPEC+ format) decided to modernize the terms of the agreement on the reduction of oil production, in force from the beginning of 2017. The countries agreed to reduce the total production by 1.2 million barrels per day from the level of October 2018.
On July 2, 2019, a decision was made in Vienna to extend the agreement on reducing oil production by OPEC member and non-member states until the end of the first quarter of 2020.
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