A changing scenario

A changing scenario

Gianni Di Giovanni
The readjustment of the oil market resulted in an agreement between OPEC members and 11 non-OPEC countries seem to hold, though, as evidenced by the contributions gathered in the number 34 of Oil, there are many factors that could affect the persistence of the new balance

It seemed like a delusion. Every previous attempt to reconcile the positions of OPEC members didn’t produce results. National interests have often prevailed over the common good, reflecting the social and economic differences of the countries that have historically been part of the cartel. United by their benevolent fortune to host, on their own territory, substantial oil reserves, they are nonetheless often diametrically distant by tradition, historical events and cultural roots. Now comes the change. First in Algiers and then in Vienna, between September and November 2016, what many international observers believed to be highly unlikely happened. We saw the signing of an agreement that, in addition to sanctioning very precise cuts in crude oil production, established new balances within and outside of the organization, partly in an effort to restore life to government budgets that rely almost exclusively on proceeds from oil, and that therefore very often pay the price for sudden price drops like those that occurred between 2014 and the present.

A historic event

Convinced of this is Mohammad Sanusi Barkindo, Secretary General of OPEC, who observes how the policy of crossed vetoes has now been replaced by reasonableness, such as to give life to “a historic event.” As explained exhaustively by Moisés Naím, the high prices prior to the post-2014 crisis encouraged the production of U.S. shale oil, with the resulting surplus of crude oil on the world markets, and the downward pressure on prices. In the first instance, the cartel decided to keep production prices unchanged to stop American expansion, but eventually, the negative impact of that decision on the cash registers of the member countries, especially Saudi Arabia, forced the cartel to resort to milder, more profitable, measures, reviewing its protectionist strategy and proceeding to downsize extractions to support prices. As the map at the beginning of the issue clearly shows, it appears that to date the commitments assumed by the negotiators have produced encouraging results: the planned cuts had reached, in January 2017, 90 percent of the established amount. However, Moscow and Washington are not merely watching. The former led the contingent of non-OPEC countries towards the agreement, and Igor Yusufov, the former Russian energy minister, retraces in his article the episodes through which his country contributed over the decades to the creation of a global energy policy.

The positions of the US and Saudi Arabia

From the U.S., new signals are expected. Donald Trump’s positions on energy, as described by Molly Moore and Sarah Ladislaw, are already under scrutiny by the international community. Will it really be a policy of revival of domestic hydrocarbon production and the elimination of any restrictions on drilling? It is still too early to say. Saudi Arabia, in the meantime, is seeking an alternative economic route, even in renewables, to its dependence on oil, as Bassam Fattouh explains, while Nigeria, Iraq and Venezuela, thanks to the recovery of the barrel, are perhaps seeing the clouds over economic recovery clearing away. Meanwhile, demand for oil races on, and will do so for some time, as Lazlo Varro, Chief Economist at the International Energy Agency, points out. This growth will be especially apparent in the transport sector, which, as Lazlo Varro advises, imposes a recovery of investments in the upstream oil market. We see a heterogeneous scenario, therefore, determined, according to our experts, by a feeling of ''unpredictability'' that will accompany us for a long time to come.