The proposal by the Organisation of the Petroleum Exporting Countries (Opec) and non-Opec oil producers to limit their output is a much-welcomed move that should continue to provide stability to markets.
Since the initial agreement in December to cut production, Brent crude, the global benchmark, has remained stable in a range of $53 to $57 (Dh194.7 and Dh209.4) a barrel, a great improvement over the dips and swings that saw prices as low as $28 and as high as $58.
However, it was inevitable that higher oil prices would result in more shale oil coming back onto the market, which would eventually cause prices to dip. That point was reached last week.
But the agreement between Opec and a few non-members to continue limiting production means that the worst of the price swings should be over, allowing the market to finally reach a balance, hopefully later this year. There has also been talk of getting US shale oil producers to join the production cap. This is unlikely to happen, but it does show that the global oil markets have finally gotten their heads around the economic problem of surplus oil and are prepared to deal with its future in a realistic manner.
If the deal is approved at a meeting on May 25, this will be great news for oil-producing countries. While the UAE has managed to diversify its economy, many other countries have not. This move should alleviate their current budgetary predicaments, if not their shortfalls.
However, this agreement should not be taken as the end of all oil-related problems. Despite talk of diversification, there has been too little movement in this direction in too many countries. This agreement should only be taken as a reprieve to fix their economies.
