Saudi Arabia is back to balance oil mkt again – Move could boost price

26/06/2016 01:45 AST

n a short and simple sentence, the head of Saudi Aramco announced last week in the USA that, “The oil glut is over and we are back to balance the oil market again”.

This short sentence, which is worth an increase of more than $3 per barrel in oil price, came from the biggest exporter of crude oil in the world.

Oil prices are bound to increase and hit $55 per barrel in no time. It is paving the way for stability in the oil market and managing the oil supply again without any fear from now on of any further glut of huge oil volume in the market.

Since 2014 after Saudi relinquished its role as the swing producer, oil prices fell from its peak of over $135 to $27 per barrel, which led to loss of revenues in all oil-producing countries and the need to borrow from the oil market.

So far the oil market has not reacted to the latest Saudi announcement but positive news of moving forward and uniting OPEC again can certainly be expected.

Today the market is hovering around $51 for Brent. It seems unlikely for Saudi Arabia to pump any volume above 10.6 million barrels and it may stay at production level of 10.2 million barrels in order to provide confidence and deplete any excess surplus. This announcement will be received positively by all oil producing countries except the American shale oil producers, which means the price will not rise up to a level that can ensure resumption of production .

The questions that are yet to be answered are – Why this U-turn in oil policy? Why now? What about Iran and its expected increase in oil production? Will Saudi close its eyes for the sake of price stability?

In the last two years, many things happened in the oil market but it also witnessed close coordination among the biggest oil producers in the world. Perhaps, we may need to wait until November 30 to evaluate and witness the result in Vienna.

Arab Times