OPEC countries should monitor oil market on permanent basis

OPEC countries should monitor oil market on permanent basis

03 July 2019, 13:47 390

Oil prices on the world market rose by 3-4% after Saudi Arabia, Russia and Iraq agreed to extend the oil output cut deal for the next 6-9 months on the eve of OPEC's Vienna meeting. The Brent crude oil futures rose by 2.93% to $ 66.64 a barrel. WTI-based American oil futures rose by 2.96% and reached $ 60.20 a barrel. These are the highest figures for the past five weeks.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies seem to continue to reduce oil production by the end of 2019. Leading oil producers yesterday said they liked the policy aimed at raising prices. OPEC, Russia and other manufacturers will hold talks these days to discuss the decline in production. The group reduces oil production since 2017, in order to avoid falling prices against the backdrop of weakening of the world economy and increasing the US production volumes. Russian President Vladimir Putin announced yesterday that he agreed with Saudi Arabia to cut 1.2m barrels of oil a day from 6 to 9 months. Saudi Arabian Energy Minister Khalid al-Falih said that the deal would probably extended for 9 months and there is no need for a larger volume of cuts. Oil production in the US reached a daily record of 12.16 million barrels in April.

So how does this decision affect the oil market?

Energy expert Zafar Valiyev said that markets should be analyzed in the upcoming months. "During the OPEC's Vienna meeting several issues were discussed and some decisions were made. There is a great need for the intervention of the participating states of the OPEC and the Vienna agreement on the global oil market. Because the gravity in the market is currently down. Until now, the balance has not been recovered since 2016. Another issue are the factors that threaten oil prices recently. The two economic powers of the world - trade and tariff clash between the US and China, and the slowdown in GDP growth, reduce the demand for oil. Thus, the volume of oil reserves recovered steadily increases. That is why OPEC+ countries have agreed to extend the Vienna agreement for a period of up to 9 months. In general, I think this decision must be made absolutely. If the parties want the balance in the oil market to be restored, the balance between heavy and light oil must be maintained. At the same time, commercial reserve oil reserves should be minimized and the volume of oil products in all energy markets of the world should be adjusted to the norm. The OPEC and the OPEC+ countries have not yet reached full agreement on all the obligations set out in 2016. Shale oil production in the US is steadily increasing. The only commercial oil reserves in the EU are more than one billion barrels. That is why it was important to make such a decision. US shale oil production will continue to grow by 2030. This means that OPEC countries have to monitor the market for 10 years. At present, two approaches are being put in place for the regulation of global oil markets. First of all, the participants of the Vienna agreement base on the principle of demand and supply in the regulation of the market. In the second place, the US plays a key role. There are two different center of gravity in the background. Therefore, markets should be seriously analyzed in the coming months. At present, it is not possible to carry out accurate statistics of export with production volumes. In other words, OPEC members and most non-OPEC countries sometimes fail to comply with the terms of the agreement. If the volume of production and export is properly adjusted, oil prices will stabilize. Increases in prices are artificial increases. This is an increase directly related to a decision taken. It is wrong to look for a fundamental reason here. Price fluctuations do not match the interests of producers and consumers," the expert noted.

Head of the Center for Oil Research, Ilham Shaban, emphasized that there was a concern from the Iranian factor before the meeting. "Economic processes in the world also caused certain doubts. Slowdown trend is observed in global economic growth. There were forecasts for lower prices since the second half of the year following the decline in demand for energy. Under such circumstances market participants are concerned about certain issues. There was no consensus on extending the oil output cut deal in June. But the solution of all issues was reached.

After the meeting of the Chinese and US leaders at the summit, Donald Tramp gave positive signals and gave a basis for the next meeting. The tensions in the ongoing trade war show a tendency towards certain softening and the rise in relations between countries. This is an additional stimulus for the development of the economy, which stimulates energy demand. After that, Russia and Saudi Arabia leaders announced a positive decision to reduce production of oil by the end of the year. In connection with certain factors, Russian President Vladimir Putin said it was possible to extend this decision for 9 months. The meeting in Vienna was remembered with positive results. I think that in the second half of the year, as opposed to forecasts, the price of oil will settle in the corridor of $60-65. This figure is a corridor that meets the interests of buyers and producers," said Shaban.

According to economic expert Parviz Heydarov, supply in the market exceeds demand. "This means that the oil price does not rise only for economic reasons. Various political factors also affect the oil price. Even political factors exceed economic reasons. For some time the prices exceeded $60, or even $70. Forecasts for the near future show that the current situation will continue to remain. Even hot political processes will keep prices under its influence for a long time. In this case the price will be more than $60. Predicting for the next year is a bit difficult. The real picture gives rise to the fact that for a long time the political reasons will overcome the economic factors. That's why prices will rise to over $ 60 a while," he said.

Shabnam Mehdizade