The OPEC countries’ share of oil production may have become far less than what it used to be, but the institution is still regarded as one of the most powerful bodies when it comes to the oil industry. The soaring production levels of shale oil in the United States and the weak outlook with regards to the entire industry as a whole, has forced the OPEC to continue with the output cut into 2020. Once the news broke that the two most important members of OPEC, Russia and Saudi Arabia, had decided to extend the cut into 2020, the price of oil rose.
In addition to that, Iran had also decided to back an output cut measure that could go on for the next 9 months. The meeting is going to take place today and the Oil Minister of Iran Bijan Namdar Zanganeh already stated that he did not have an issue if the output cuts are extended. At the end of the day, most of the OPEC countries depend on the higher prices of oil for their own economic well being and it is not a surprise that due to the negative outlook regarding the price of oil in the near future, they have decided to curb the supply of oil. The measure had first been implemented back in 2017 when the OPEC was determined to ensure that stock of oil at a global level got drained. However, it has continued and now the countries are all set to extend the cuts until 2020.
Analysts believe that the extension of the cuts for nine months is going to be cheered on by the market. Mohammad Darwazah, who is an oil analyst, stated,
“The market is going to like the nine months extension. Everyone now is realizing that in 2020 supply growth will exceed demand growth. And the Saudis and the Russians are trying to get ahead of that situation.”
Although nothing has been announced yet, it is believed that the extension is all but finalized.