Counting the Cost

OPEC and the stagnant price of oil

As OPEC agrees on the first production cut in eight years, we examine the impact on global oil prices.

The 15th International Energy Forum, held in Algiers earlier this week, saw OPEC members decide to cut production by about 800,000 barrels a day. The cut will not be consistent across all member states but is significant nonetheless, being the first in eight years.The move is meant to stabilise global oil prices.

“Today OPEC has taken an historic decision. OPEC will go back to its role of monitoring the market. It’s a role that it lost many years ago, that it is now reclaiming,” said Noureddine Boutarfa, the Algerian energy minister. 

We've seen that in the past, when Saudi Arabia was serious about cutting down oil, it has significantly impacted the oil price.

by John Sfakianakis, Gulf Research Centre

Many oil income-reliant states have welcomed OPEC’s decision in light of the dramatic drops in oil prices from $110 a barrel in 2014, to less than $30 a barrel this year.

However, details on the production cut are still vague. There are yet to be any specifics concerning which of the OPEC states will be set to decrease their output, how long for, and when the plan will come into play.

With a formal OPEC gathering set for November 30 – which means that realistically, effects from this decision will only really come to fruition in 2017 – concerns about compliance are arising.

Experts say the oil price wars have been affected by the competition between traditional oil producers and US shale producers.

Regionally, there is also a high tension relationship between Saudi Arabia and Iran to consider. Saudi Arabia and fellow Gulf states, however, maintain that no politically-driven decisions have been made. Some analysts have faith in what is to come from these member states.

“The change in tone, the body language from Saudi Arabia, that they are willing to work together with other producers … and it’s not that they haven’t been trying to do that – other producers have to give something as well,” says Amrita Sen, chief oil analyst at Energy Aspects, an independent research consultancy.

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