Saudi Arabia’s Energy Minister Khalid Al-Falih told reporters in early December that OPEC will monitor oil output and production to ensure that the agreement to curb output is met by all until the end of 2018 [Xinhua]
If you haven’t heard by now, 2017 ends with oil prices well breaching the $60 a barrel mark leaving producers much more confident as they head into 2018.
This is a boon on two fronts for the world’s biggest oil producers Russia and Saudi Arabia.
The Russians over the past three-and-a-half years have weathered the storm of crude oil prices plummeting from over $100 a barrel to $26 a barrel at one point.
To make matters worse, they were hit with punitive EU and American sanctions over the Ukraine crisis at the same time leaving their economists struggling to find an alternative path for economic growth.
After a number of state and banking interventions, the Russians were able to bounce back from the recession zone in late 2016, and from March of 2017 largely because they had rearranged their economy and based it on the $40 threshold.
The little momentum on the Ukraine tract since US President Donald Trump came into the White House and with Russian President Vladimir Putin’s successful intervention in the Syrian war, the rise in crude oil prices is only set to strengthen Russian influence in the Middle East and beyond.
Similarly, Saudi heir apparent Mohammed bin Salman consolidated his power base in the Kingdom with higher oil prices now only likely to boost the Saudi economy and that of many Arab Persian Gulf countries.
In the interim, this will serve his ambitious socio-economic and political reforms in the works for 2030.
Saudi Arabia’s most pivotal step in the oil markets has been its ability to coerce OPEC and non-cartel members to stick to the 1.8 million barrels a day production cuts since last year.
Hand in hand with the Russians, this has been one of the leading factors on boosting oil prices in 2017.
The two countries, once at loggerheads over Syria and Iran, have set aside their differences in favor of oil market stability.
2017 began with oil prices climbing in the $45-55 range to end the year near $67 a barrel.
With Saudi Energy Minister Khalid Al Falih pledging that oil cuts will continue till the end of 2018, oil prices are likely to range between $60 and $70 a barrel for much of the year.
The biggest threat to market stability, of course is how quickly shale oil production will be back on line.
When the oil glut of 2014 hit, some speculated that Saudi Arabia had orchestrated the drop to stall shale oil research and development.
Whether the Saudis can take credit or not, big oil retreated from shale production over the past three years.
Will they make a comeback?
Any such threat will likely be offset by geopolitical instability in the Middle East.
The Saudi-Lebanese rift rattled markets in late November, and now tensions in major producer Iran – if prolonged – will likely do the same.
That’s yet another plus for the Saudis who are expected to sell shares of their oil giant Aramco to much public appeal and fanfare this year.
And it hurts none that their main rival in the region Iran is feeling the domestic heat.
By Firas Al-Atraqchi for The BRICS Post