Without mincing my words I will prefer to call recent agreement of OPEC and non-OPEC members to cut output ‘an agreement of thugs to rip off consumers’. They have agreed to cut output but still don’t trust each other. They even go to the extent of calling each other ‘cheater’. Therefore, some of the members are most likely not to abide any production limited. The business will continue as usual because consumption of energy consumption will increase with the commencement of winter. However, the level of consumption will remain dependent on the drop of mercury level.

Let me explain my assertion that the US and Saudi Arabia were partners in taking oil prices up to US$147/barrel. In fact Saudi Arabia fell in the trap because it was overwhelmed by the hike in price. Although, I fell that I am not competent enough to say but just can’t resist from saying. Saudi Arabia just did not bother to look at the number of rigs operating, which exceeded 1900 at one time. The quantum increase in US Shale output helped the country (US) in becoming self sufficient in indigenous oil production. The US is no longer dependent on imported oil, though it is still importing low cost oil from Saudi Arabia.

In my previous blogs I have discussed different themes that included 1) pressure on Iran to cut output 2) Saudi Arabia asked to make the biggest cut? 3) Iran not a threat to Saudi Arabia but US Shale, certainly 4) attempts to penalize Iran and Russia have backfired. The scenario prevailing since 2014 can be summed up in one sentence, ‘Saudi Arabia kept on pumping maximum oil to maintain its market share. It may have succeeded in maintaining the share but petro income nosed dived, leading to extensive borrowing.

After the withdrawal of sanction imposed on Iran, Saudi Arabia felt jittery and feared losing its substantial market share. It completely ignored another harsh reality that due to over three decades of economic sanction, Iran’s output could not be increased. Though, economic sanctions were also imposed on Russia, it managed to take its output above 11 million barrels lately. That is the reason it convinced Saudi Arabia to agree to cut output because it believes that collectively two countries (Russia and Saudi Arabia) now enjoys power to maneuver oil price. Both of them want to ensure that Shale production does not increase certain level.

I will also say that geopolitics play a key role in the supply of oil. Some of the most obvious examples are Nigeria, Libya and Iraq. As and when a reduction is desired, output in these countries is disturbed. This time the issue of pipeline in the US has also affected shale output.  Therefore, the readers may also agree with me that oil output and its prices are controlled by a few thugs; they may appear foes but have common agenda, keep the world under their control.

 

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