Without mincing my words I will prefer to call recent
agreement of OPEC and non-OPEC members to cut output ‘an agreement of thugs to rip
off consumers’. They have agreed to cut output but still don’t trust each
other. They even go to the extent of calling each other ‘cheater’. Therefore,
some of the members are most likely not to abide any production limited. The
business will continue as usual because consumption of energy consumption will
increase with the commencement of winter. However, the level of consumption
will remain dependent on the drop of mercury level.
Let me explain my assertion that the US and Saudi Arabia
were partners in taking oil prices up to US$147/barrel. In fact Saudi Arabia
fell in the trap because it was overwhelmed by the hike in price. Although, I
fell that I am not competent enough to say this, but just can’t resist from saying.
Saudi Arabia just did not bother to look at the number of rigs operating, which
exceeded 1900 at one time. The quantum increase in US Shale output helped the
country (US) in becoming self sufficient in indigenous oil production. The US
is no longer dependent on imported oil, though it is still importing low cost
oil from Saudi Arabia.
In my previous blogs I have discussed different themes
that included 1) pressure on Iran to cut output 2) Saudi Arabia asked to make
the biggest cut? 3) Iran not a threat to Saudi Arabia but US Shale, certainly
4) attempts to penalize Iran and Russia have backfired. The scenario prevailing
since 2014 can be summed up in one sentence, ‘Saudi Arabia kept on pumping
maximum oil to maintain its market share. It may have succeeded in maintaining
the share but petro income nosed dived, leading to extensive borrowing.
After the withdrawal of sanction imposed on Iran, Saudi Arabia
felt jittery and feared losing its substantial market share. It completely
ignored another harsh reality that due to over three decades of economic sanction,
Iran’s output could not be increased. Though, economic sanctions were also
imposed on Russia, it managed to take its output above 11 million barrels
lately. That is the reason it convinced Saudi Arabia to agree to cut output because
it believes that collectively two countries (Russia and Saudi Arabia) now
enjoys power to maneuver oil price. Both of them want to ensure that Shale
production does not increase certain level.
I will also say that geopolitics play a key role in the supply
of oil. Some of the most obvious examples are Nigeria, Libya and Iraq. As and
when a reduction is desired, output in these countries is disturbed. This time
the issue of pipeline in the US has also affected shale output. Therefore, the readers may also agree with me
that oil output and its prices are controlled by a few thugs; they may appear
foes but have common agenda, keep the world under their control.
