Abu Dhabi: Oil prices are expected to remain in a band of $60 to $70 (Dh220 to Dh257) per barrel in the short term if Opec (Organisation of the Petroleum Exporting Countries) and its partners adhere to the production restriction agreement that came into effect earlier this year, analysts said.
Opec along with its allies, including Russia, is cutting production by about 1.8 million barrels a day to rebalance oil markets and prop up oil prices. The agreement which is being implemented since January this year is valid till March 2018.
“So far, Opec production restriction is holding. Oil prices are at a two-and-a-half years high. It is expected that the agreement will be extended as the price increase is beneficial to all Opec members,” Justin Dargin, a global energy expert at University of Oxford, told Gulf News by email.
Oil surged above $63 a barrel to its highest level in two years recently after Saudi Crown Prince Mohammad Bin Salman launched his purge which included the detention of Saudi billionaire Prince Al Waleed Bin Talal Al Saud, the head of Kingdom Holding with stakes in Twitter, Citigroup and Apple among others.
Tensions in Iraq over the control of Kirkuk oilfields in Kurdistan as well harsh rhetoric from the US president Donald Trump on reinstating sanctions on Iran also helped oil prices move upwards.
Brent, the global benchmark, was trading at $62.72 per barrel, up by 2.22 per cent and US crude West Texas Intermediate at $56.55 per barrel, up by 2.56 per cent when markets closed on Friday.
“The market overreacted to the recent developments in Saudi Arabia. It is a slight overreaction and as a result, a minor correction will result soon as the price increase based on Saudi developments are not based upon structural factors in the market,” Dargin said.
On the increase of shale oil production in the US, he said, it would have a downward pressure on oil prices but more restraint in production on the side of Opec members would forestall a slide in global oil prices.
“Opec has recognised that North American shale production is here to stay, and as a result, more restraint in production on the side of Opec members would forestall a slide in global oil prices,” he pointed out.
Oil producing countries are meeting in Vienna on November 30 to take a decision whether to extend the output cut deal beyond March next year.
Gulf energy ministers including from the UAE, Oman and Bahrain backed the extension of oil output cuts but there are doubts whether Russia will continue to be part of the agreement.
“Russia is waiting to see what happens. It is the least affected economically among all oil producing countries and its economy can withstand the low oil prices much better than Saudi Arabia or some of the Middle East economies,” said Jaafar Altaie, managing director of Manaar Energy Consulting.
“If the oil price goes up due to political tensions in Saudi Arabia, Iran, Iraq or Venezuela, Opec might ask why should we intervene when markets are doing the job for us? Extension of the agreement will not be a simple decision when oil producing countries meet in Vienna later this month,” he added.