Opec is contemplating its “most ambitious venture in decades”, says The Economist. The oil exporters’ cartel joined forces with Russia to mop up much of the market glut by agreeing to curtail production. Oil inventories in developed countries are again nearing the five-year average. Opec, led by Saudi Arabia, and Moscow have now confirmed they want to continue their production cuts until the end of the year and envisage a formal alliance to prop up oil prices for the foreseeable future.
But this will be a tricky tightrope to walk. If pricesrise much above today’s $60-$70 a barrel, “it will flush out” yet more production from low-cost shale drillers in the US and other big producers such as Brazil. Saudi Arabia has long been Opec’s swing producer, regulating output to underpin prices, but a long-term deal would require other Opec states to turn the taps on and off. Yet history shows they have often cheated on their quotas to maximise revenue, and at present Opec members Nigeria, Iraq and Iran are “itching to pump more”, notes Elisha Bala-Gbogbo on Bloomberg. Oil bulls shouldn’t get too excited.