After months of dithering and intense negotiations, the world’s two largest oil producers – Russia and Saudi Arabia – have finally agreed to freeze their output in a bid to shore up oil prices after a 70 percent plunge due to chronic oversupply. The agreement was announced in Doha yesterday at a press conference which was also attended by Qatar’s Minister of Energy and Industry H E Dr Mohamed bin Saleh Al Sada, who played a key role in making this deal a reality after intense consultations with the leading oil producers. The market hasn’t been overly enthusiastic about the agreement. The prices rallied after the announcement, then struggled, as did the global stocks as the markets weren’t fully convinced about the possibility of prices witnessing a surge in the long-term. But that’s a blinkered view. The Saudi-Russia decision is significant for the simple reason that it heralds a more elaborate and determined attempt by producers to lift the prices. The energy industry has been in disarray after the precipitous drop in prices; the Organisation of Petroleum Exporting Countries (Opec) found itself toothless for a meaningful intervention as its market share didn’t suffice to influence prices due to an abundance of non-Opec oil, and finally, the oversupply, the villain that broke the market, was too huge to be contained through ordinary measures. The latest output agreement has been achieved against all these odds. Russia is not a member of Opec and its cooperation with Opec in stabilising the prices can go a long way in stabilising the market.
At the same time, the new deal would come to nought if not supported by other producers, both Opec and non-Opec. And its continuation is conditional on other producers joining in. The Gulf producers are likely to curb output but doubts remain about the commitment of other producers like Iraq and Iran. Further talks involving Iran and Iraq are to be held in Tehran this week. There is a need for all sides to put their economies in the forefront and not use oil as a tool in the rising geopolitical tensions. Every producer is looking at a modest price that can minimise the damage, as has been succinctly put by Saudi Oil Minister Ali al-Naimi. “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand and we want a stable oil price,” he said. And this stability is vital for the resuscitation of several oil-dependent economies across the world, though Gulf economies have comparatively remained unscathed due to their huge reserves.
The current slump in prices is not benefiting many. Several consuming countries have refused to pass the low prices to their public by jacking up the taxes.
After months of dithering and intense negotiations, the world’s two largest oil producers – Russia and Saudi Arabia – have finally agreed to freeze their output in a bid to shore up oil prices after a 70 percent plunge due to chronic oversupply. The agreement was announced in Doha yesterday at a press conference which was also attended by Qatar’s Minister of Energy and Industry H E Dr Mohamed bin Saleh Al Sada, who played a key role in making this deal a reality after intense consultations with the leading oil producers. The market hasn’t been overly enthusiastic about the agreement. The prices rallied after the announcement, then struggled, as did the global stocks as the markets weren’t fully convinced about the possibility of prices witnessing a surge in the long-term. But that’s a blinkered view. The Saudi-Russia decision is significant for the simple reason that it heralds a more elaborate and determined attempt by producers to lift the prices. The energy industry has been in disarray after the precipitous drop in prices; the Organisation of Petroleum Exporting Countries (Opec) found itself toothless for a meaningful intervention as its market share didn’t suffice to influence prices due to an abundance of non-Opec oil, and finally, the oversupply, the villain that broke the market, was too huge to be contained through ordinary measures. The latest output agreement has been achieved against all these odds. Russia is not a member of Opec and its cooperation with Opec in stabilising the prices can go a long way in stabilising the market.
At the same time, the new deal would come to nought if not supported by other producers, both Opec and non-Opec. And its continuation is conditional on other producers joining in. The Gulf producers are likely to curb output but doubts remain about the commitment of other producers like Iraq and Iran. Further talks involving Iran and Iraq are to be held in Tehran this week. There is a need for all sides to put their economies in the forefront and not use oil as a tool in the rising geopolitical tensions. Every producer is looking at a modest price that can minimise the damage, as has been succinctly put by Saudi Oil Minister Ali al-Naimi. “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand and we want a stable oil price,” he said. And this stability is vital for the resuscitation of several oil-dependent economies across the world, though Gulf economies have comparatively remained unscathed due to their huge reserves.
The current slump in prices is not benefiting many. Several consuming countries have refused to pass the low prices to their public by jacking up the taxes.
