Chess Game With OPEC

It is a wise move from OPEC to extend a long-term partnership with non-member producers beyond 2018. By “drafting the Charter” OPEC stays in the driver seat. Keeping everyone together could be beneficial for OPEC. It extends cooperation between members and non-members.

With the flourishing of new pipelines around the world. It has become a game of chess for OPEC to stay in control of the game. United States, Russia and East Africa have emerged as key players. Other countries like Lebanon and Egypt are now looking at offshore drilling.

What was once a power house OPEC has lost some of its luster, the agreement would be establishing a permanent agenda. Some of the non-members like Russia who have been cooperating with OPEC are not inclined to commit. Instead the would like to stay independent but would continue to collaborate with them.

By inviting collaboration between OPEC and non-members, they could control the oil prices. On the other hand, it could help if a shortage of production could happen to one of the members by flowing more crude from another member to balance the market.

Producers have addressed the cut of 1.8 million barrels per day as a main increase for crude markets.

While OPEC is cutting is production, the United States are increasing their production. The last quarter of 2017 the United States oil production increased by 846,000 barrels per day. It could surpass Saudi Arabia and could take Russia’s production by the end of 2018. The United States is gaining market shares as OPEC is trailing.

In the near term we could see some price fluctuation. As OPEC is shorting its inventories to try to destabilize the United States producers, it could cause the markets to temporarily tumble if other producers do not step in to close the gap. This kind of maneuvers have been attempted in the past by OPEC but have not succeeded.

It is going to be interested to know what kind of agreement OPEC is willing to extend towards non-members. We need to watch what move the United States as well as Russia producers are going to make on that chess board this year.