Cooling prices do not answer the million-dollar question
News | Published Monday, July 19, 2021 11:03 AM
Reported by MARINE ONLINE
Oil prices were volatile from tight supplies, will supplementing address the issue?
Pricing has always been the elephant in the room. It does not help that nobody in the world agree to a homogeneous model. However, it seems the Organisation of the Petroleum Exporting Countries (OPEC) is still the dominant party.
Will this dominance continue?
Just a week back, everyone was undecided on how to stabilise oil prices. It fell by more than $1 a barrel after a poor weekly performance on U.S. fuel demand. Brent crude priced at $73.47 a barrel, dropping $1.29, or 1.7 per cent. U.S. West Texas Intermediate (WTI) crude settled at $71.65 a barrel, down $1.48, or 2.2 per cent. Till the middle east producers talked, prices were falling upwards.
Finally, a consensus was reached within OPEC to increase supply. The OPEC includes countries and allies like Russia, who agreed on a new production allocation from May 2022. It was also after Saudi Arabia and others’ concurred on a request from the United Arab Emirates (UAE) that had threatened the plan. UAE’s Energy Minister Suhail bin Mohammed al-Mazroui said at a press conference they are pleased with the plan. Saudi’s Energy Minister, Prince Abdulaziz bin Salman, however declined to answer questions on how the compromise was reached.
OPEC cut production by a record 10 million barrels per day (bpd) amid the pandemic-induced drop in demand with collapsing prices in 2020. It has gradually reinstated some supply; “improving” the reduction to about 5.8 million bpd. OPEC said in a statement that from August until December 2021, the group will increase supply by a further 2 million bpd or 0.4 million bpd a month.
It had also agreed to extend their overall pact until the end of 2022 from an earlier planned date of April 2022, in case the pandemic situation does not improve. Whilst both Saudi and the UAE were supportive of an immediate output boost, the UAE objected to Saudi’s idea to extend the pact to December 2022 without getting a higher production quota.
To overcome the disagreement, OPEC agreed on new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq. This is a clear indication of conflicting profit interests among parties. It also corroborates the hypothesis on arriving at a homogeneous pricing model will be unlikely.
Marine Online News Team
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