Delegates attending the 171st ministerial meeting of the Organization of the Petroleum Exporting Countries (OPEC) have reached an agreement to slash oil production in a bid to prop up global prices. Oil prices surged to one-month highs after the announcement of the deal. However, the prices are still half to the levels recorded in mid-2014.
Press TV has spoken to Jack Rasmus, author of "Systemic Fragility in the Global Economy," as well as Dean Henderson, author of "Big Oil and Their Bankers in the Persian Gulf," to discuss the issue.
Rasmus believes OPEC’s agreement to reduce oil production is just the first step because global oil prices are a function of all suppliers in the world.
“OPEC does not control by itself global oil prices. We have got Russia that almost produces as much and we have the US shale producers that produce almost as much. So there is a three-pole determinant of global oil prices driven by supply,” he said.
The analyst further opined that Saudi Arabia’s decision to cut its oil output at this point in time has a lot to do with its internal finances, adding that the current oil price has caused trouble for the kingdom.
He also said the Saudis attempted to bankrupt the new shale producers in the United States by causing an oil price drop in 2014 because they saw them as a major threat to their control of global oil prices.
However, he said, the Saudis have realized that they have failed so they are trying to reduce oil production.
“The Saudis attempted to go to war with the shale producers and they have been fighting it ever since, and I would say they are losing the war not that they are winning it and they have realized that now and they are starting to try to back off of keeping prices low because they are not going to bankrupt the US oil drillers,” he stated.
Elsewhere in his remarks, Rasmus noted oil prices are also driven by demand as much as by supply, arguing that the move to increase the oil price by restricting the supply may easily be upset by “declining global demand.”
He went on to say that demand and currency issues are going to have an “offsetting effect” on OPEC’s attempts to restrict supply and raise prices that way.
According to the analyst, there are many unknowns that will affect global oil prices, so this minor move by Saudi Arabia will not really turn around to stagnant oil price situation.
Meanwhile, the other panelist on Press TV’s program, Dean Henderson opined that Saudi Arabia tried to knock the oil price down in 2014 in an attempt to put pressure on Iran and Russia.
He also argued the Saudis were “in cahoots” with big oil companies to knock out the competition in the shale patch, adding that now that they have the reins on that shale oil again, it is acceptable to cut production and try to bump up prices.
“I think it is more about the timing. It is not so much that they made a mistake, it is like they had to do that to get rid of the shale people and they had to kind of try to rein in the Russians, the Iranians, the Venezuelans, for a little while,” he said.
The analyst further mentioned there is a possibility that the Saudis would be a little more compliant, play a little nicer and go along with what the world community wants due to US President-elect Donald Trump’s threat of cutting them off.
“I think Trump would like to be more energy efficient at home and self-sufficient here at home and we will see what happens with the US-Saudi relationship if he falls through on that or not but the Saudis are a little bit on the heels right now and so they are a little bit more willing to do things that maybe they did not want to do a couple of years ago,” he stated.