Muscat: Omani crude oil moved beyond $55 per barrel for the first time in 18 months, as oil producing countries see the results of OPEC’s late 2016 pact to reduce production.
Omani crude futures, due for March delivery, traded at $55.04, an increase of 26 cents since last trading on the Dubai Mercantile Exchange, as compliance by oil producing countries kicked off this month.
The agreement in Vienna concluded with OPEC nations and independent producers of crude oil agreeing on a combined output cut of nearly 1.8 million barrels per day (bpd) beginning this month, in order to control the global supply glut that brought prices to a 15-year low. Oman’s Ministry of Oil and Gas has pledged a production cut of 45,000 bpd.
Prices have soared by 20 per cent since the agreement was announced, but experts believe economic stability would return to Oman only if this rally is sustained by continuous price increases. “It is a great start to 2017, but it is too early to predict anything. Unless there is stability in prices, which is hard to predict, there is very little optimism,” said an economist at a leading firm in Oman.
“The present oil price should sustain for at least short to medium term to have a positive impact on the economy, reducing the deficit and in achieving medium-term fiscal and economic stability, said Mohammed Nayaz, advisory partner at Ernst & Young.
“If this happens we will see an increased activity in the economy in terms of the Government releasing development projects in the priority sectors which were withheld in 2016 due to the low oil prices,” he said.
Although the agreement has led to an unprecedented price rally for the first time in three years, the sheer number of variables involved has left experts sceptical.
The OPEC agreement is often played down due to speculation about cheating by nations involved in the agreement and over concerns about increased production in countries that are not part of the agreement. Stronger US dollar among other factors could also cap or derail oil price rally.
“Oil at $55 is excellent, however, there is US shale and other countries ramping up oil production that can disrupt this deal. We hope prices go higher though,” said Mohammed Khalid, Country Manager at Descon Engineering.
“If the deal goes through as intended, we will see oil at $60 to $65. At the moment, there are sustainability issues. All we have for now is that firings will stop temporarily and we can clear our finances with ease at these prices, but if we want to look at new projects in the oil and gas sector, prices must be at $65 per barrel,” he added.
Phil Flynn, senior market analyst at The Price Futures Group in the United States, said if nations adhere to the pledged cuts, prices could reach $65 per barrel.
“This is a historic move by OPEC, and compliance should set the stage for oil to move to $65 a barrel. Oman has committed to cut 45,000 barrels, which I believe they will adhere to,” he said.
According to Abdullah Al Mandhari, CEO of EOR LLC, Oman must cut production from fields that are high cost producing and focus on enhanced oil recovery to honour the agreement and keep improving production facilities.
“We can increase our national income by cutting down production from high cost production fields. Also, budgets from these fields can be channelled to innovative technologies and to the EOR Innovation Center to bring about lower cost innovations in production to Oman, and economical access to those oil reserves we have failed to produce from for over three, and even four decades after their discovery. This will guarantee a very lucrative oil-based economic future for Oman,” he explained.