Muscat: Oman will support any production cut planned by OPEC, according to the Sultanate’s Minister for Oil and Gas.
Dr Mohammed Al Rumhy, Minister of Oil and Gas, speaking at the Oman - Brunei joint energy and industry summit, said Oman has been invited to Vienna to discuss production cuts with OPEC members.
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“We will discuss the terms and conditions of a production freeze or cut with other countries. Oman will co-operate to achieve the planned target. Our percentage decrease in production will depend on the meeting and how much we are asked to cut,” he said.
The minister said he believed a proposed daily cut of 1.2 million barrels would not be enough, but was “heading in the rightdirection”.
OPEC hopes choking back production will result in a price boost for oil in the market. The Sultanate’s economy has been hit hard by falling oil prices in recent months.
OPEC members are set to meet non-OPEC members on December 10th in Vienna to discuss terms and conditions of the cuts in output.
Oman is the largest non-OPEC oil producer in the Middle East, pumping one million barrels per day, on an average.
Al Rumhy added that production cuts were the only way to move beyond current low oil prices.
“The only way out I see is production cuts, as the market is still over-supplied. Although a cut of 1.2 million barrels a day won’t be enough, I believe we are heading in the right direction,” he said.
Members of OPEC meeting last week in Vienna decided that a combined output cut of 1.2 million barrels per day will be worked out by the group, in a bid to reduce glut and ramp up prices. The production cuts are expected to take effect by January 2017. OPEC hopes that non-OPEC members will contribute another 600,000 barrels per day in output cuts.
According to Rumhy, production cuts will help increase oil revenue and, therefore, will have no effect on oil and gas jobs in Oman.
He also noted that the budgeted oil price for 2017 must remain the same as 2016. “Although it is for the Ministry of Finance to decide, I believe the budgeted price of oil must remain at $45, the same as in 2016. If oil prices increase, it is an added benefit for Oman,” he said.
According to an official of a private company in Brunei, oil and gas prices operate on supply and demand, and any cut in supply by OPEC will lead to higher prices.
Kanaga Sundar, Head of Research at Gulf Baader Capital Markets, said that the global oil market would balance sooner than estimated during early 2017 and the oil prices may reach closer to the $60 level if the output cut deal goes through with strict compliance from the OPEC members.
“We have seen a more than 15% increase in global oil prices after the OPEC announcement and non-OPEC members cutting supply ensuring prices above $60 per barrel during the coming months,” he said.
Sundar added that Oman may perhaps cut around 4-5% crude oil production, similar to OPEC members and there will be little effect on the economy as the higher prices would eventually increase gross revenue of the government.
According to Mohammed Nayaz, partner at Ernst & Young, the decision on output cut is an excellent move in the short term.
“This is likely to have a favorable impact on the oil prices in the short term. However, the extent of impact in oil prices and the consequential impact on the government cash flows is dependent on the extent of production cut in Oman and the other OPEC and non-OPEC countries. “Notwithstanding the above, the Oman Government’s recent efforts to promote economic diversification is a step in the right direction and needs to be pursued,” he added.