Economist Cornelia Meyer discusses why Saudi Arabia and Russia consider reversing a 2017 deal to curb oil supply.
In January 2017, after years of stalled levels and a slump in global crude oil prices, Saudi Arabia led OPEC (the Organization of the Petroleum Exporting Countries) in a jointly brokered deal with Russia to curb global crude oil production.
| I don’t think we’re looking at a major re-think, but we are looking at them addressing an issue that we had over the last year. We lost about a million barrels [per day] out of Venezuela and we’re going to lose a few hundred thousand out of Iran, thanks to the sanctions … So a lot of countries are producing less than they were expected to produce and are exporting less than they were expected to export. |
But unforeseen market and geopolitical forces in 2018 have reduced crude oil supply even further, prompting the world’s two biggest oil producers to consider boosting crude production.
A boost in output would be aimed at increasing oil revenues – a move that investors will be looking out for during OPEC‘s June 22 meeting in Vienna.
When OPEC and non-OPEC countries initially agreed to the deal, there was a surplus in global oil inventories, but political volatility in 2018 has changed that, says economist and independent energy analyst, Cornelia Meyer.
“I don’t think we’re looking at a major re-think, but we are looking at them addressing an issue that we had over the last year – we lost about a million barrels [per day] out of Venezuela and we’re going to lose a few hundred thousand out of Iran, thanks to the sanctions … So a lot of countries are producing less than they were expected to produce and are exporting less than they were expected to export.”
Any increase in production by Russia and Saudi Arabia, according to Meyer, would likely meet with an increase in exports by the United States which, with its production of shale oil, is expected to overtake Russia as the world’s biggest oil producer.
“If you’re Russia and Saudi Arabia, the two really big producers, and Saudi Arabia is the only swing producer, then obviously you want that agreement of cooperation because you need to give a counter-balance to this new emerging American powerhouse of exporting crude.”
In 2018, the ability to produce and export oil, and to manage price and supply, remains a powerful driver of global economies.
