Saudi Arabia’s OPEC victory

Saudi Arabia’s delegation, led by Energy Minister Khalid al-Falih, found success during Friday’s OPEC meeting in Vienna, Austria.

The meeting resulted in the unanimous decision to increase global oil production, with an unofficial target of an added one million barrels per day.

But why was this decision made? And who are the true winners of the deal?

Reason for the decision

The fact of the matter is that the market is demanding more oil as we enter the second half of 2018. A supply shortage in crude oil would be a very real and global issue without Friday’s decision to increase production.

Some of the world’s largest nations, such as the United States, China and India previously urged oil producers to increase supply to avoid an oil deficit that could threaten global economic growth. And with that, a background story comes to light.

Last year, a strategy was implemented among OPEC and non-OPEC members to cut production by 1.8 million in an effort to re-balance the market. However, that number was unexpectedly surpassed.

Due to further output constrictions in troubled states such as Venezuela, Libya, and Nigeria, the planned 1.8-million-barrel reduction hit 2.8 million instead. And hence, a shortage concern arose for OPEC to deal with.

With Venezuela’s political mayhem, Libya’s civil chaos, and Nigeria’s pervasive internal violence, a lot of crude oil can no longer be counted on to be a part of global output. Therefore, implementing a strategy involving an increase in oil production is the obvious choice.

Also due to these conditions, a different course of action is required in terms of policy. In the past, those who exceeded production targets were reprimanded and a close eye was kept on them. With Friday’s agreement, over-production will be somewhat encouraged in order to make up for any unexpected geopolitical or social conditions that may prevent the targets from being achieved.

Furthermore, some nations will continue to decrease production and not take part in the agreement due to their political situation in terms of limitations of resources and overall under-investment. That is understandable and to be expected.

Raising conformity

The OPEC and non-OPEC nations involved in the debate and agreement definitely have the capacity to achieve the objectives of this decision. We can expect an increase of around 800,000 barrels per day to be injected into the industry, and raising conformity levels to 100 percent is indeed foreseeable.

OPEC has done an outstanding job of being very inclusive, by not focusing simply on the giant oil-producers of the world, but also including consumers, stakeholders, non-government organizations, and the world economy in the discussions.

Targeting production-amounts as a group of nations seems to be the latest trend in the oil industry, rather than the traditional scheme of every country having its own production-targets. This new trend will create a larger task for OPEC, but at the same time greater results are anticipated.

Aside from avoiding supply shortages, maintaining oil prices is another concern to take into account. With supply shortages increasing prices, OPEC has yet another task. While that may sound positive to the average person, it can be catastrophic to the world economy.

Keeping leveled pricing within a stable market while producing at a higher rate is much healthier and durable than a sudden increase in oil prices within an unstable market, while producing at a lower rate. And that brings us to the winners of this decision.

Winners of the decision

The Kingdom of Saudi Arabia is clearly the biggest winner in this deal. The Russian delegation, led by Energy Minister Alexander Novak, is surely thrilled with the deal as well, having been very supportive of the proposal and Saudi Arabia’s efforts.

These two oil-rich nations have been given the chance to increase their crude oil output, while also benefiting from a more stable and balanced market.

The lack of supply in the market needs to be filled during the second half of the year, and these two oil giants will gladly do their part in filling the gaps. But at the end of the day, the world economy as a whole shall find victory in the agreement. After all, it was unanimously approved for a reason.

Saudi Arabian Energy Minister Khalid Al-Falih was firm and confident in his approach at the recent OPEC meeting, as he is at all OPEC gatherings. A suggestion was placed on the table to increase production, and Saudi Arabian politics came out on top.

Persuading even the Iranians to agree, al-Falih handled the meeting to perfection. Under the instruction and support of the Custodian of the Two Holy Mosques King Salman and Crown Prince Muhammad Bin Salman, the Energy Minister was able to leave the crucial meeting with a Saudi Arabian victory, while benefiting the world economy at large.

Crown Prince Muhammad Bin Salman’s desire for a stronger and grander Saudi Arabia is leading to these achievements. The young competent leader is implementing non-oil sources of prosperity, but at the same time finding success in the oil industry. Since his appointment as Crown Prince, Saudi Arabia has revived its place in the industry at a remarkable pace.

As stated in Vision 2030: “We will continue to manage effective oil production to ensure a rewarding flow of oil revenue and reinvestment.”


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