Without mincing my words I will prefer to call the recent agreement of OPEC and non-OPEC members to cut output ‘an agreement of thugs to rip off consumers’. They have agreed to cut output, but still don’t trust each other. They even go to the extent of calling each other ‘cheaters’. Therefore, some of the members are most likely not to abide any production limited. Business will continue as usual because energy consumption will increase with the commencement of winter. In other words, the level of consumption will remain dependent on the drop of mercury level.
Let me explain my assertion that the US and Saudi Arabia were partners in taking oil prices up to US$147/barrel. In fact Saudi Arabia fell in the trap because it was overwhelmed by the hike in price. Although, I just can’t resist from saying that Saudi Arabia did not bother to look at the number of rigs operating, which exceeded 1,900 at one time. The quantum increase in US shale output helped the country (US) in becoming self sufficient in indigenous oil production. The US is no longer dependent on imported oil, though it is still importing low cost oil from Saudi Arabia.
In my previous articles I have discussed different themes that included 1) pressure on Iran to cut output 2) Saudi Arabia asked to make the biggest cut? 3) Iran not a threat to Saudi Arabia but US Shale, certainly 4) attempts to penalize Iran and Russia have backfired. The scenario prevailing since 2014 can be summed up in one sentence: ‘Saudi Arabia kept on pumping maximum oil to maintain its market share.’ It may have succeeded in maintaining the share, but petro income nose-dived, leading to extensive borrowing.
After the withdrawal of sanctions imposed on Iran, Saudi Arabia felt jittery and feared losing its substantial market share. It completely ignored another harsh reality that due to over three decades of economic sanction, Iran’s output could not be increased. Though, economic sanctions were also imposed on Russia, it managed to take its output above 11 million barrels lately. That is the reason it convinced Saudi Arabia to agree to cut output because it believes that collectively the two countries (Russia and Saudi Arabia) now enjoy power to maneuver oil prices. Both of them want to ensure that Shale production does not increase above a certain level.
I will also say that geopolitics play a key role in the supply of oil. Some of the most obvious examples are Nigeria, Libya and Iraq. As and when a reduction is desired, output in these countries is disturbed. This time the issue of a pipeline in the US has also affected shale output. Therefore, the readers may also agree with me that oil output and its prices are controlled by a few thugs; they may appear to be foes, but they have common agenda, to keep the world under their control.