On November 30, OPEC countries reached an agreement on reduction of oil production. According to agreement, the Organization of the Petroleum Exporting Countries, which accounts for a third of global oil supply, agreed to cut production from January by around 1.2 million barrels per day (bpd), or over 3 percent, to 32.5 million bpd.
The cut will put production at the low end of a preliminary agreement struck in Algiers in September, and will reduce output from a current 33.64 million bpd.
Chairman of "Oil researches Center” Ilham Shaban has answered questions of "Kaspi” on this issue.
-OPEC countries have decided a decision on reduction of oil output. Do you think that it will bring price stabilization?
-After some days or even to the end of the day drop in oil price is possible. Since, exceeding oil price $ 52 per barrel is a result of "shock effect” on the stock exchanges after the decision taken in Vienna. As nobody expected a decision on cutting of oil production 1.2 million barrels a day. Some days ago, price of oil drop 3 percent. As expectations were very complicated. As well as, information and predictions were disproof and generally market participants had not expected this decision. Whereas the outcome of the meeting is considerably positive. 10 percent growth in prices were welcomed. However the decision is simply on the paper. As, any actions have not started due to realization of the decision. After some time, the market will return to its realities. In January 2017, new messages will be sent to the market. If quotes reduced really, it will has an impact. I deem, after that time, starting $50 prices will rise. Price stability may probably start from February 11. Because at that time International Energy Agency and other global organizations will announce reports. Exactly these reports will reveal how much oil was produced by certain countries. Those reports will be compared with OPEC quotas. Determination and stabilization in prices will be on the agenda if there is harmony between the two figures. Otherwise, the situation will be more complicated. Besides such development of processes may cause to disbelief.
-Before the Vienna summit, some experts insisted on opposite decision in their predictions. There were too much disagreements between the parties. What is the reason behind this outcome?
-Of course, positions of oil producing countries were the most important factor here. Moreover, in the last 10 years OPEC has not had such tense meeting like this. It is supposed that the sides were eagered to reach this agreement.
Another significant issue was Indonesia’s quit from OPEC over oil productions cut. 750 thousand barrel of Indonesia will be divided between the OPEC memebers. Therefore the quotas of member countries, in fact, has not been announced yet
- Do you think that the parties will comply with the agreement on oil output cut?
- As I noted, it is unknown now. It will be revealed only after the February reports. Although Iraq, Iran stated that agree with the decision, but it is not clear that how far the countries will follow the agreement
- What does non-OPEC countries meeting in Doha, on Dec 9 promise ?
-It is difficult to predict anything. As, I deem Doha meeting also will be a tense meeting like the Vienna meeting. The main goal of the meeting to achieve oil output cut by 600 thousand barrels by non-OPEC countries. One of important goals is to make Russia, the biggest non-OPEC country, agree to cut oil output. However, it is questionable weather it will be achieved or not.
-After the summit, the price rose rapidly. Approximately, it is about 9 percent growth. To what extend can the incraese continue?
-The latest increase in prices within two days can be considered "technical” growth. The incraese will prolong for some days. Then everything will be stable again.
Traders know that there are a lot of oil in the market. Output will be cut starting from 2017. However it is possible that prices won’t rise in January. Traders refuse to sell oil that they currently have got. They will sell oil in January, when oil output has already been cut. Since they want to get more profit by selling at high price. Currently, price of oil is $52-53. On the other hand, countries that must follow oil output cut agreement want to get more profit by selling more oil till January. As since January their quotes will have been cut. Contrary to expectations, all these facts cause drop in oil price.