Will OPEC Continue with Production Cuts?

Signers of the Vienna agreement will meet in less than a month’s time to decide the fate of the production cuts. Last year, major oil producing nations met to decrease their crude oil output in the first half of 2017. Crude oil has bounced from lower levels of $27 and making a high of $55. This helped the slumping economies of oil producing nations get some respite. Unfortunately, oil prices remained stationery after that, refusing to move closer to $60. Now, reports suggest that while output is decreasing, compliance is decreasing too.


Oil Output Keeps Falling


The exempt nations of Libya and Nigeria were unable to produce much in the month of April due to unrest and maintenance issues. Saudi Arabia, the biggest output reducer of the deal, continued to produce fairly below their target. However, UAE and other countries did not show as much compliance to the agreement as before. In March, a 92 percent compliance (revised) was witnessed by the nations. In April, the compliance level has gone down to 90 percent. The oil cartel is notorious for not following strict guidelines and this is another testimony to the fact.

The countries will be meeting in June to decide if they wish to continue following the Vienna agreement for another six months or not. OPEC countries have been hit the hardest because of the oil price slump in 2014. They want the oil prices to break the $60 threshold and remove excess supply from the market. The problem here is that because of production cuts, prices have been rising. This rise in price is reviving many American oil companies to produce more oil. Ultimately, oil prices are not crossing $60 mark; leave alone the pre-2014 levels.

OPEC’s Future Lies in Oil


The OPEC countries have shown an 98 percent compliance to the Vienna agreement in the OPEC report. It is in the favor of these nations to continue to cut oil production to make things better. Saudi Arabia has already pointed towards the continuation of the Vienna agreement. It is a matter of survival for these nations as the drop-in oil prices in 2014 ruined their economies. Now, they need to cut production and increase prices.

American shale oil producers have been a major threat to these nations as they increased the supply in the market. It is important for OPEC as well as oil companies around the world for the prices to go beyond $60 to at least break even. BP also mentioned that this condition had to be fulfilled if they must break even. While motorists may not like the change, a rise in oil price is necessary for many economies of the world to survive.