Opec and Moscow strong-arm oil price

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.

  • ConservativeNeil

    As long as these greedy dopes do not set a price level at which they will open their spigots and a price level at which they will cut back their production, it will only be a short-term hit or miss fix. The OPEC idiots have never been able to put in that simple mechanism, primarily because there are cheaters at every price point. Saudi Arabia has the capacity to be the balancer single handedly. A $50/Barrel equilibrium price for Saudi is a fair price at the current level of production quota. It should adjust its budget to that price. Every $1/barrel change in price should trigger a corresponding production change of 100K Barrels/Day! That would mean that Saudi should be producing an extra 1.3 Million Barrels/Day at today’s prices!!