Friday 19 / April / 2024
Muscat: Oman will slash its oil output as part of a production cut agreement hammered out by the Organisation of Petroleum Exporting Countries (OPEC) with independent producers in Vienna on Saturday.
“Oman will cut oil production by 45,000 barrels a day, following an agreement reached by OPEC with independent producers outside the organisation,” a tweet by the Ministry of Oil and Gas read.
The plan calls for a 4.5 per cent reduction in Oman’s total oil output, valued at almost OMR900 million, and will begin in January 2017.
Oman’s oil production averaged one million barrels per day for the first time in history in 2016.
According to the agreement, non-OPEC, or independent producers, will together cut output by 558,000 bpd, just short of OPEC’s expectations. OPEC had recently announced a production cut of 1.2 million barrels per day, and expected non-members to slash output by 600,000 bpd.
Oil prices surged more than 15 per cent after OPEC’s November 30 announcement, and closed just below $55 per barrel last week.
Experts predict the pact will push up oil prices.
Kanaga Sundar, head of research at Gulf Baader Capital markets, believes that oil may rise to nearly $60. “We have already seen an increase in prices of oil since OPEC’s announcement, and with a deal between OPEC and non-OPEC we can see it rising close to $60 a barrel,” he said.
All participating countries have agreed to cut their production by some four per cent of total output. Russia, which has pledged to slash production by 300,000 bpd, will account for the bulk of the output cut by independent producers. On the OPEC side, the largest cut, of nearly half a million bpd, will be by Saudi Arabia.
Twelve non-OPEC members, including Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan, and South Sudan, met with OPEC officials in Vienna on Saturday to complete the agreement.
The agreement between the two sides was the first since 2001, in a bid to ease a global oil glut that has sent prices plunging from $100 per barrel in 2014, to below $30 in 2016, and threatened to push oil export-based economies into debt.
According to Abdullah Al Mandhari, chief executive officer of Enhanced Oil Recovery Oman, the decision will allow Oman to add far more value to its oil and gas output and shift to more sophisticated extraction technologies at its oil fields.
“Oman is blessed with many producing fields and we have a very experienced Minister of Oil and Gas. Reducing production in high production cost oil fields will easily be absorbed and, in fact, financially be more positive for the Sultanate when the income from low-production-cost oil fields is of higher margins due to this global agreement.
“After all, it is not the number of barrels of oil that determines the Sultanate’s national income, but rather the overall difference in oil price against our oil production cost,” he said.
“The other way is by fast-tracking adoption of innovative technologies that many countries are using to bring down production costs. This will also have the same balancing and positive effect,” he said.
After reports that shale oil producers were ready to revive dormant oil wells following Saturday’s deal, not all analysts were positive about the agreement.
The Energy Information Administration (EIA) predicted that shale oil production will halt the oil price rally.
However, Al Mandhari says that the agreement will have no effect on shale oil producers because all key players globally have come to realise that it is important to be united on output, if both individual and global producers are to benefit.
Sophia Tozy, an economist at Coface, noted that a dramatic rise in oil prices is unlikely due to fundamental reasons of supply and demand. “As soon as they rise to a higher mark, unconventional sources of oil production will come up in the US and bring prices down again,” she said.
