Saudi Arabia Should Lead Other OPEC Members in Reducing Oil Output
February 21, 1998 - 0:0
When Saudi Arabia announced on Wednesday that it is prepared to consider reducing its oil output if other OPEC members pumping above assigned quotas showed some restraint, the oil prices increased 53 cents per barrel. The above announcement only goes to prove that despite all the complexities of the oil market, the key to oil prices lies in the oil producers themselves, especially the OPEC members.
In fact OPEC's decision in Kuala Lumpur in November to increase the quota of member states by 10 percentraising the cartel's official output to 27.5 million barrels per dayis considered to be a blunder. It is a fact that some OPEC members do not honor quota restrictions and unilaterally decide to pump more oil as they see fit. Actual production today is more than 28 million barrels per day and, due to the oil glut, oil prices have touched their lowest ebb in the past 46 months$14.22 a barrel.
The idea of lowering output ought to be a good eye-opener for the Saudis and other OPEC members. Saudia Arabia, also experiencing financial difficulties, should now have realized its power in global oil trading and to be able to use this crucial role for achieving real success for itself as well as other OPEC members. In short, the Saudis are a powerful force in fixing world oil prices and this has been proven by the practical reaction of the market to their mere announcement.
Now it is their duty to follow up their words with action, that is, they must stick to what they have just said and, along with other OPEC members, reduce their production to save the black gold from being plundered. Of course, Saudi Arabia's decision would have no significant effect on prices unless total global output is reduced. To achieve this, other OPEC members have to consider the same great responsibility.
Even though countries not in the cartel, such as Norway, could have a significant effect on global oil prices, still the fact is that OPEC as an organized body could, with discipline among its members, significantly dictate prices. In short, two eyes are better than one and the united effort of Saudi Arabia and others in the cartel to reduce production will be able to achieve the desired end, that is, raising the price of oil by reducing the supply.
Unfortunately, Venezuela is OPEC's biggest quota-buster and is not likely to cooperate with other oil producers to ease the glut in world supply. Venezuelan Oil Minister Erwin Arrieta reacted to the above Saudi announcement by saying Caracas would absolutely not consider any output cut. But, as we have said, the Saudis, as the world's biggest oil exporter, can play a crucial role in rescuing oil prices from further plunges by controlling the supply with the help of other OPEC members who are bound to cooperate with Riyadh to make its bid a real success.
Saudi Oil Minister Ali Al-Naimi said rightly on Wednesday that the Kingdom was seeking meaningful efforts towards quota adherence from those in OPEC pumping beyond official allocations. It is the expectation of all OPEC members from those pumping beyond their official quotas to stick to their official ceiling and cooperate as much as they can to save the black gold from total disaster.
This life-saving measure cannot be ignored as oil constitutes the life-blood of all OPEC countries. Reduction of quotas and commitment to official allocations are the best ways to save oil prices.
In fact OPEC's decision in Kuala Lumpur in November to increase the quota of member states by 10 percentraising the cartel's official output to 27.5 million barrels per dayis considered to be a blunder. It is a fact that some OPEC members do not honor quota restrictions and unilaterally decide to pump more oil as they see fit. Actual production today is more than 28 million barrels per day and, due to the oil glut, oil prices have touched their lowest ebb in the past 46 months$14.22 a barrel.
The idea of lowering output ought to be a good eye-opener for the Saudis and other OPEC members. Saudia Arabia, also experiencing financial difficulties, should now have realized its power in global oil trading and to be able to use this crucial role for achieving real success for itself as well as other OPEC members. In short, the Saudis are a powerful force in fixing world oil prices and this has been proven by the practical reaction of the market to their mere announcement.
Now it is their duty to follow up their words with action, that is, they must stick to what they have just said and, along with other OPEC members, reduce their production to save the black gold from being plundered. Of course, Saudi Arabia's decision would have no significant effect on prices unless total global output is reduced. To achieve this, other OPEC members have to consider the same great responsibility.
Even though countries not in the cartel, such as Norway, could have a significant effect on global oil prices, still the fact is that OPEC as an organized body could, with discipline among its members, significantly dictate prices. In short, two eyes are better than one and the united effort of Saudi Arabia and others in the cartel to reduce production will be able to achieve the desired end, that is, raising the price of oil by reducing the supply.
Unfortunately, Venezuela is OPEC's biggest quota-buster and is not likely to cooperate with other oil producers to ease the glut in world supply. Venezuelan Oil Minister Erwin Arrieta reacted to the above Saudi announcement by saying Caracas would absolutely not consider any output cut. But, as we have said, the Saudis, as the world's biggest oil exporter, can play a crucial role in rescuing oil prices from further plunges by controlling the supply with the help of other OPEC members who are bound to cooperate with Riyadh to make its bid a real success.
Saudi Oil Minister Ali Al-Naimi said rightly on Wednesday that the Kingdom was seeking meaningful efforts towards quota adherence from those in OPEC pumping beyond official allocations. It is the expectation of all OPEC members from those pumping beyond their official quotas to stick to their official ceiling and cooperate as much as they can to save the black gold from total disaster.
This life-saving measure cannot be ignored as oil constitutes the life-blood of all OPEC countries. Reduction of quotas and commitment to official allocations are the best ways to save oil prices.