Friday 13 January 2017

Saudi Arabia cuts oil production but is it enough?

With Saudi Arabia fully aboard and leading the recent decision taken by OPEC to cut back on the production of oil, the prospects of seeing an increase in prices are starting to look likely at the beginning of 2017.

Riyadh's energy minister Khalid Al-Falih reported that Saudi Arabian oil output had gone below 10 million barrels per day for the first time in two years in a show of commitment to other nations within and outside OPEC of it's urgency to stabilise oil prices.

A shake up in the energy ministry in May 2015 has led many analysts to believe the move was necessary for the implementation of the deal to go through as Ali Al-Naimi who had held the position for over twenty years had compromised Riyadh's primary source of income in more ways imaginable.

Al-Naimi was replaced by current incumbent energy minister Khalid Al-Falih who has moved aggressively to see to it that a deal has been completed.

Saudi Arabia's economic woes might be far from over though as there aren't any guarantees that all nations will comply with the agreement and the potential for producers from countries outside OPEC to ramp up production under scrutiny.  
For one US producers have been besieged with enduring a low price environment for an extended period of time and those who found the financial means to keep afloat will certainly be looking for a payoff for their hardships.

Also the short term effects of a spike in oil prices could see the surplus of barrels above surface being liquidated quickly and the time needed to clear these backlogs taking first priority over stabilisation. In all likelihoods it'll be a while before we witness the true impacts of the deal.

And who can forget Russia whose shrewdness to lure Saudi Arabia into the deal making process provided the catalyst for the oil leader to structure a deal not only for its own sake but of that of oil producing nations.

However Moscow's warm reception to newly elected US president Donald Trump could pose a threat to the deal if Russian president Vladimir Putin decides to shift alliances on the heartbeat of a whim which isn't unusually in his political sphere.
These factors and so many more stand in the way of a successful deal which is why 2017 will be a testing time for oil markets.
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