OPEC Production Pledges Drives Up Oil Prices

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Oil prices have hit a two-year high on the expectation that a self-enforced OPEC production curb will continue into 2018.

The price per barrel passed the $62 mark for the first time since July 2015 – more than $12 up on the price for the first half of 2017.

Rumours coming out of OPEC – the cartel representing most of the world’s oil producing nations – suggest that the self-imposed production limits holding up prices will continue after the group meets later this month.

OPEC sets a six-month review of production and the current agreement is set to peter out within weeks.

However, OPEC is keen to dispel uncertainty over price and has hinted the cap will stay on until at least March 2018, when the group is scheduled to meet again.

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Dilemma for OPEC nations

Saudi Arabia, Russia, Kazakhstan and Uzbekistan all met recently and confirmed they will continue to operate within the production curb.

The arrest of leading oil company entrepreneurs in Saudi Arabia’s purge against corruption also shook the market until the government took steps to reassure investors by explaining although some businessmen have been arrested and their personal bank accounts frozen, those of their companies remain untouched for trading.

Many OPEC nations are trapped in a dilemma. They want to see higher oil prices to collect more revenues that underpin their economies that have suffered from lower profits from oil and gas fields, but they do not want to make extracting shale oil more cost-effective for the US and Canada.

The US is stockpiling shale oil and reducing imports to cut the country’s reliance on imports, but shale extraction is only profitable when oil prices are pitched at a certain level.

Price won’t hold predict analysts

Many market analysts predict the price of oil will fall to around $50 next year.

Joseph McMonigle, senior energy policy analyst at HedgeEye, summed up the uncertainty about oil prices.

“Oil markets were already facing major geopolitical risks with Iraq’s response to the Kurdistan independence bid, potential new US sanctions on Iran and an economic and political collapse in Venezuela,” he said.

“Now we can add an unsettled Saudi political environment and attempted Houthi-Iran missile attack on Riyadh to the mix. Geopolitical risks have just spiked, and oil prices are heading higher.”

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