The ongoing record production cuts from the OPEC+ group are set to push oil prices up to ‘normal’ levels soon, Suhail Al Mazrouei, energy minister of the United Arab Emirates (UAE), told Washington-based research institute Atlantic Council in a call.
Al Mazrouei didn’t specify what constitutes a ‘normal’ oil price, but as Bloomberg notes, Brent Crude prices averaged $64 per barrel in 2019.
This was a much more comfortable level for oil producers in the Persian Gulf and the U.S. alike, compared to the sub-$20 a barrel price that Brent Crude hit in April when the U.S. benchmark WTI Crude settled one day at a negative $37 a barrel. Since April, oil prices have doubled, with Brent Crude trading at $40 early on Tuesday.
Back in April, oil at $40 a barrel looked like “a dream,” Al Mazrouei, the energy minister of one of OPEC’s largest producers and most influential members, the UAE, said in the call with the Atlantic Council.
“Unless we have a second wave I think we will have a recovery at a pace that is adequate to the cut that we have done as OPEC+, provided that other producers don’t rush and over-produce,” Al Mazrouei said.
Commenting on the shaky compliance with the cuts in May and the extension of the record cuts by one month to the end of July conditional on laggards compensating for looser compliance in May and June, UAE’s energy minister said:
“In previous deals we had countries cheat because there was no rule. Now there is a rule, so countries are coming and stating their commitments.”
An OPEC+ monitoring panel is meeting in teleconference on Thursday to discuss the ongoing record production cuts to see how laggards in compliance are doing with making up for flouting quotas. The Joint Ministerial Monitoring Committee (JMMC), however, will not be making any decisions regarding the collective cut that was just extended through the end of July—it only has the power to recommend a course of action.
By Tom Kool of Oilprice.com
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The reason is that the overwhelming members of OPEC are still dependent on the oil export revenues to the tune of 85%-%90 with the exception of Iraq whose dependence reaches 95% and Iran at 15%.
Of course a $40 oil is a dream compared with lower $20s under the exceptional COVID-19 pandemic, but these are unusual circumstances. A normal price under normal circumstances is definitely double that price.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London