Several online sources report that Saudi Arabia tried to sign a secret agreement with other OPEC members behind the scenes in advance of the recent unofficial OPEC summit in Algeria.
To be more specific, more than 4 weeks ago, Saudi Arabia addressed the rest of OPEC to offer them a secret deal. They promised to cut their own oil production by 400K a day if Iran stops increasing its oil production and caps it at 3.6 million barrels a day. Eventually, the Iranian Minister of Oil is reported to have rejected this offer. They say Iran is trying to increase the daily production level all the way up to 4,2 million barrels a day.
Saudi Arabia was forced to change its strategy. Masterforex-V Academy experts remind us that back in February 2016, the Saudis were ready for ultra-low oil prices at $20/b. Now they were forced to change their mind due to the recent economic and financial challenges. Since they knew about OPEC’s forecast saying that the oversupply in the global market of crude oil is going to stay there in 2017 as well, the Saudis decided abandon this strategy, especially as they got to know that the expected long-lasting effect from low oil prices were expected to last even longer than expected before.
At the same time, we should keep in mind that the Saudis has recently been waging a rather costly military campaign in Yemen. All of the factors together have dropped the living standards in the country. According to Masterforex-V Academy experts, the pressure was building up and the local authorities decided to show that they couldn’t just stay they and see the national economy suffering.
Moreover, the authorities are concerned over the estimates that if oil prices don’t go and consolidate above $50/b in 2017, this may well undermine the pricing of Saudi Aramco, the country’s biggest government-owned oil company, which is going to see an IPO in 2018. They say this is one of the key parts of a major play aimed at diversifying the national economy of Saudi Arabia.
Basically, that’s why Saudi Arabia advocated and backed the decision to cut oil production throughout the entire cartel. The newly-signed agreement is expected to make OPEC to cut its oil production by roughly 1 million barrels a day. Still, nobody knows whether this plan is really going to be put into practice.
