OPEC meet must help set the market tone

Had the OPEC meeting been held two months ago, the agenda would have been different in light of plummeting oil prices that hurt many economies and caused volatility at the global markets. But with the current surge in the oil price to around $50, the pressure on OPEC is remarkably easing. This will be reflected at the meeting on Thursday in Vienna. With this development, there is general consensus that there will be no agreement on quotas or lower production. It is no longer urgent as it was two months ago when some OPEC member states called for capping the production ceiling to enhance prices.
Saudi Arabia will see little reason to change direction from the policy introduced in November 2014. The kingdom set the group on a path of protecting market share in the face of rapidly rising US shale oil production by refusing to agree to a lowering of its output target, and now the market is correcting itself through dwindling non-OPEC supply
When prices collapsed from over $100 in 2014 to close to $25 this January, producers led by kingpin Saudi Arabia called for maintaining output even with lower prices. Last week, both main oil benchmarks — West Texas Intermediate and Brent crude — briefly touched the psychologically important level of $50 a barrel and remained close to that level despite slipping back slightly.
The brunt of lower oil prices was not bore by the OPEC alone. Due to the drop in oil prices, dozens of US shale oil firms have gone bankrupt. Slumping prices, resulting in crude trading at under $30 a barrel in February from above $100 two years ago, made it unprofitable for some shale companies to compete with traditional producers like OPEC and Russia.
CMC Markets trader Alex Wijaya warned, “Crude oil prices have failed to hold above the $50 level due to concerns that higher prices could unlock
more supply.”
These fears are real. The countries hit hard by the low oil prices would try to shore up their economies by raising their production ceiling. This is where the OPEC should intervene to set the market tone.
Of course, a number of factors pushed the prices up. Militant attacks have cut Nigerian supply to the lowest level in more than two decades. While Canadian output fell amid wildfires, producers are starting to resume operations after the blaze eased. Libya’s Petroleum Facilities Guard captured a town near the Es Sider and Ras Lanuf oil-loading terminals after fierce clashes with IS militants. The lower production from these regions might have helped in the surge of prices.
Yet, Iraq said it would supply 5 million barrels of extra crude to its partners in June, joining other Middle East producers by lifting market share ahead of the OPEC meeting. Iraq, which is the second-largest OPEC producer, had already been targeting record crude export volumes from southern terminals next month of 3.47 million barrels per day.
World oil prices may struggle to sustain a push beyond $50 a barrel after hitting the key level for the first time this year, analysts warned on Friday.
The lower oil price was a blessing in disguise. Some OPEC members such as the UAE, Saudi Arabia and Qatar have expedited their plans to diversify their economies away from oil. Though the drop of oil prices have caused difficulties, the UAE for instance, started to economic diversification through reducing dependence on oil, which accounts for 30 percent of the GDP. It is pushing harder to reduce this percentage by resorting to alternative and
renewable energies.
All eyes are set on Vienna meeting to see how the OPEC members com
promise over a strategy that would stabilise the market.