Muscat: Oman will cut crude oil production as OPEC deal with independent producers comes into effect. Accounting for 4.5 per cent of its 1 million barrel per day production, Oman will slash 45,000 barrels per day to honour the agreement with OPEC.
The deal, however, could be marred by the defiance of producers and hikes in production by independent producers, both of which could render the agreement unworkable.
“We will have to wait and watch. The first quarter is going to be very important,” said Kanaga Sundar, Head of Research at Gulf Baader Capital Markets. Although Kanaga predicts oil might reach $60per barrel, he added that this hinges on whether producers comply with the agreement.
In 2016, oil made the biggest annual gain since 2009, which was following the global financial crisis that drove prices down on concerns about demand.
The price per barrel had fallen to below the $30 level in January last year, but has since registered a 100 per cent increase, hovering around $55 per barrel at the close of 2016. Oman crude closed trading in 2016 at $54.24 per barrel. The price rally has brought optimistic views about the Omani economy and job market. In an interview with Times of Oman, oil and gas experts said that oil at $55 could help save jobs and avoid laying off workers.
According to Abdullah Al Mandhari, CEO of EOR LLC, oil prices will reach $80 per barrel, as most countries understand that higher prices are for the good of all and, therefore, the compliance rate will remain high.
“There is no doubt that countries will comply, because they can already see that prices increased due to the agreement. I believe the oil price will stabilise in the eighties, as a sustainable price for both producers and consumers,” he said.
Speculations about an agreement between OPEC and non-OPEC members triggered the price rally beginning in early 2016 and, with a deal finally reached on December 11 in Vienna, futures rose at unprecedented levels, with some analysts predicting oil might reach $60per barrel in 2017.
However, the price rally could be hindered by loopholes in the agreement. Libya and Nigeria were both exempted from the agreement to trim production due to political instability, and have been increasing output at record levels
Libya has ramped up production by 600,000 barrels per day since September 2015, and Nigeria recently announced an increase in output by 61,000 bpd.
In the United States, which was not a part of the negotiations, drilling companies have added 200 rigs since May last year, and as prices are expected to move upwards, production is likely to rise, cancelling gains made by the OPEC agreement.