Muscat: Oman will support the extension of a cap on oil production as businesses in the Sultanate begin to feel the benefits of the deal. In an interview with the Times of Oman, Dr. Mohammed Al Rumhy, Minister for Oil and Gas confirmed that Oman will support extending in choking production for another six months, agreed on by OPEC (Organisation of Petroleum Exporting Countries) and some non-OPEC members last year.
“We are in support of extending the production cuts to another six months,” the minister stated, echoing Saudi Arabia and Russia, who have advocated cuts.
Oil prices jumped 20 per cent in weeks following the deal in December 2016, and have since brought respite to the battered oil and gas industry in terms of employment.
“We had a lot of firing in 2016, but this year we are maintaining the employee numbers, which is a good sign. We completely support the extension of production cuts as it has certainly helped us,” Mohammed Khalid, general manager at Descon Engineering, said.
“February, especially, had been very good for us. It was stable but now it is again fluctuating. If the extension of production cut brings stability, that is all what the oil and gas sector needs now,” he said.
Al Rumhy added that oil and gas companies should be comfortable with oil at $50 per barrel as they are making good money at this rate; however, from the point of view of the national budget, it is very challenging and not enough to satisfy the needs of the country.
“Although the prices went higher this year, the firing did not really stop. I think if the production cuts are extended, the price of oil may hit $60 and we can have no firing and a stable oil and gas sector,” Mohammed Al Farji, board member from the General Federation of Oman of Trade Unions, said. Earlier last week, Raoul Restucci, managing director at Petroleum Development Oman (PDO) said the company is happy with the oil price at this level.
“We are expanding; the prices of oil haven’t affected our operations. We are very profitable and we are working on reducing expenditure to increase margins,” he told the Times of Oman.
According to Mubeen Khan, a Muscat based CA and analyst for oil markets, the extension of production cuts will drive prices higher due to trader’s sentiments instead of supply and demand.
“This time it is a little different from the earlier days of the oil glut. We expected the supply and demand to level by now, however, it did not. I think the market is now driven by sentiments of the traders than supply and demand. The extension of cuts has been good for Oman as it has increased the oil prices in the first six months delivering good results for the country’s economy. This extension is likely to increase the prices due to better trader’s sentiments and although I won’t predict the prices, they will go reasonably higher,” he explained.
“I think we have struggled in 2016 and ever since talks of production cuts came into play, prices began to rise. I think it will have a similar effect. People in the oil sector are suddenly finding more job security as they know the worst is over for Oman. I guess if prices will stabilize in the next few months, we will expect the oil and gas sector to again start functioning as it did before the crisis. It makes sense as we all expect markets to balance by the end of the year,” said an analyst at one of the top oil companies in Oman.
In recent days, the oil price has slipped back to pre-OPEC agreement levels as U.S. shale producers offset gains made by the deal. Concerns over the future of the oil sector remained as high fluctuations in prices have stalled oil and gas companies expansion plans.
“There are a lot of issues in pursuing expansion due to the instability in the prices. We don’t know where the prices will go. If we can have the stable prices, we will surely go forward with the expansion plans,” Descon Engineering’s Khalid stated.
“I think it is a good decision to extend it. We will find ourselves in a good position in the future because of this. However, we don’t want investments and projects to stop as that will be harmful to the market,” said Ahmed Al Hooti, a member of the Oman Chamber of Commerce and Industry.