The Organization of Petroleum Exporting Countries has taken back the driving seat.
Well, not that much but yes, it has. Many commodities markets were certainly taken by surprise when OPEC members reached an agreement to reduce oil production at a meeting in Algiers.
This is not a result that many analysts had predicted. Many were of the opinion that there would be a replica of the Doha meeting back in April.
In deed the Algiers meeting recorded some progress.
The context for the Algiers decision – and the unsuccessful attempts to agree action before – is crude oil prices are less than half what they were in June 2014.
OPEC member countries will fill the pain of this decision.
Increasing economic pressure
The financial and economic performance of most governments has been on a decline.
For example, Saudi Arabia recorded a deficit of 16% last year as opposed to 2012 when there was a surplus of 12% in government finances.
Similarly, Angola only recorded a 3% economic growth last year unlike in 2013 when the economy grew by 7%.
The figures are much worse in Venezuela partly due to declining oil prices. Political instability in the country is also to blame.
It is now two years ever since oil producing countries started to fill the financial pain.
Of course the whole market is not entirely dependent on OPEC. There are some large producers who are not members. Some of them are China, Russia, the United States and Canada. But the group, which currently has about 40% of the global market can move it by cutting production – and it does have a history of responding to low oil prices, by cutting production.
What took so long?
The group’s main stakeholder, Saudi Arabia, has in the past been on the forefront in championing for reduction in production.
But recent times have seen Iran emerge from international sanctions due to its nuclear plans. The country was thus forecast on making the best of this opportunity.
The main issue in OPEC was thus refusal by Saudi Arabia to cut down oil production because Iran had not done so. This tension is what made the Doha meeting to fail.
But things have now taken a positive turn. Saudi Arabia has softened its stand while Iran has boosted oil production.
After the Doha meeting, Khalid al-Falih was appointed as the oil minister. He is reported to have said at the Algiers meeting that Libya, Nigeria and Iran will not be allowed to produce above the maximum levels.
Mohammad Sanusi Barkindo, the group’s secretary general said that the three countries “have lost a considerable volume of their production due to unfortunate circumstances”. He said “they will be treated differently.”