Ardent critics of OPEC, particularly Saudi Arabia, have either been silenced or coerced to alter their opinion. In the first such deal since 2001, the cartel made peace with a group of 11 other key oil producers, led by Russia, to reduce production in a bid to prop up crude oil prices.
As Dr. Faisal Mirza, an ex-Aramco employee and an industry expert, points out, “Since the failed Doha meeting last April, Gulf ministers insisted that any return to production cuts must include concerted action by OPEC and non-OPEC producers. Eventually, they came to an agreement after massive efforts of diplomacy and fulfilled that condition.”
It is interesting to note, however, that while Iran was an active participant in the negotiations and has agreed to adhere to the deal, the United States continued to shun any efforts oil producers make to balance the market.
Nonetheless, the Vienna agreement gives the global industry a few reasons to rejoice. First, it firmly establishes the fact that it wasn’t and is not in OPEC’s interest’s to bully the world’s oil markets to drive other producers out. Had it been so, it would have never taken the initiative to reach out to those very same players whom it has been supposedly battling with since December 2014.
Second, by virtue of the deal, Saudi Arabia and Russia consolidate their positions as responsible leaders/influencers of the global oil market. After championing this agreement, observers can’t help but be convinced that the market is in the hands of good and able leaders now.
Lastly, and more importantly, oil prices have received the necessary impetus to rise to a realistic level – the $60-70 per barrel range – which will hopefully breathe new life into the upstream sector, and at the same time not make the industry undesirably comfortable (as in the pre-2015 period).
Desperately required investments and capital expenditure will hopefully be made during the course of the year, which will presumably lead to an overall development of the entire industry, including the contractors and products and services providers.
I travelled to Ras Al Khaimah last month to meet the regional managing director of Flexitallic, one such active product supplier to the industry. A detailed interaction with the executive and a tour of the company’s busy manufacturing unit makes me feel the industry’s wheel is beginning to move again.
To new beginnings then!
