The cartels arrangement hammered out in Vienna may put a floor under the price of crude, but Saudi Arabia has failed to destroy the US fracking industry
Two years of wrangling were needed before Saudi Arabia and the rest of the Opec oil cartel could agree a cut in production at its meeting in Vienna last week.
Ever since the breakdown in crude prices in 2014, the big oil-producing countries have plotted a way to regain control and improve their battered finances. But agreeing which countries would bear the ache of the steepest production cuts had proved an insurmountable challenge.
That barrier demonstrated less formidable once costs stayed persistently low into 2016. With a recovery in the crude marketplace nowhere in sight, ultimately one member after another fell down line at Vienna and crucially Russia, a non-Opec producer, agreed to a cut of its own.
It means that for UK motorists the days of 1-a-litre of petrol are likely to fast become a distant memory.
It was only back in January that the price of a barrel of Brent crude tumbled towards $27 and some analysts forecast that it could reach as low as $10. There was pleasure among western leaders who dared to believe that the era of stellar economic growth that characterised the 1990 s, fuelled as it was by super-low oil prices that rarely pushed above $20 a barrel, was about to return.
But a long run of ultra-cheap prices was not to be; Brent quickly bounced back and spent the rest of the year moving between the $40 – $50 mark. None the less, Opec, which produces a third of the worlds crude oil, wanted more and announced that it would cut production by around 4 %, or 1.2 m barrels per day, to bring output down to 32.5 m barrels per day in January. The cut is an effort to set a $50 -a-barrel floor under the price and move it towards $60 a barrel within a few months.
Mihir Kapadia, chief executive of fund administrator Sun Global Investments, says: Petroleum costs are genuinely on course for a recovery. The first coordinated action by the Opec members in eight years has definitely defined a new price outlook for the commodity. The longer-term impact on oil price will depend on the implementation of the accord, and discipline in sticking to the accord.
But few in the oil business expect a return to the prices which predominated the early part of the decade, including the most recent peak of $114 two years ago. It is more likely that a $60 cap will emerge as the Americans, who stand outside the 13 -member Opec grouping, unplug the spigots that have maintained their shale oil fields from rendering in the last year or two. It is the emergence of shale drilling where pumping a mixture of chemicals, water and sand into dense rock releases trapped petroleum that has prevented Opec from controlling supplying and demand in the way it did in the past.
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