OPEC strategy: is it still relevant?

ABU DHABI, U.A.E. (CNN) – King Salman of Saudi Arabia and Vladimir Putin of Russia—once fierce competitors as the world’s two largest oil exporters—are now partners in the price recovery.

In 2016, their two energy ministers, Khalid al Falih and Alexander Novak, hatched a plan to mop up a record oversupply of crude.

Over 20 OPEC & non-OPEC producers have taken an average of 1.8 million barrels a day off the market.

Monica Malik, Chief Economist at ADCB said, “The working together for the common goal has been central to the strong performance, and strong output cuts of the unified group.”

The unconventional move defied the naysayers who said this diverse coalition would come unglued.

Their discipline has paid off. From early 2016, when fell below $30 a barrel, the recovery has been impressive, recently topping $75.

The rally was sustained despite a big rise in us oil production with hale producers helping it pump out 10 million barrels a day last month.

The official line from OPEC headquarters is that there’s no reason to change course.

OPEC Secretary General Mohammed Barkindo said, “I think there is a growing consensus the agreement of OPEC & Non-OPEC led by the Kingdom of SA and Russia should continue for the foreseeable future.”

Founding OPEC member Iran could be the wildcard in all this. If its nuclear agreement is altered, another million barrels a day could come off the market, pushing prices even higher.

Then there is what we can call the “Trump factor.” The U.S. President recently suggested in a tweet that OPEC was artificially driving up oil prices. Strategists say his intervention may influence US allies here in the Middle East, like Saudi Arabia & the UAE, both OPEC members.

The higher crude may be a boom now for U.S. shale producers, but President Trump may have the American consumer in mind.

Emirates NBD Chief Economist Timothy Fox said, “In an environment of political uncertainty and mid-term elections on the horizon, he can least afford higher pump prices in the U.S.”

In the meantime, low-cost players like the U.A.E. are rolling out more plans for the future, with confidence that price stability can be sustained with OPEC/non-OPEC cooperation.

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