As the global economic landscape begins to increase in volatility amid Europeans tensions over seceding from the EU and North Korea antagonizing the world with threats of nuclear conflict, oil producer have contemplated the possibility of continued production halts in an effort to raise oil prices to around $60 a barrel, up from the current $53.18 as of 4/17/17.
According to the major oil producers that being Saudi Arabia, Iraq, and Kuwait, $60 a barrel would theoretically boost their economic activity and allow for greater investment in the energy sector without overly compensating American shale output, which has proved more volatile than oil production. Though the countries had previously targeted $55 a barrel by cutting 1.2 million barrels a day, other members of the 13-nation cartel that is OPEC have signaled an intent to extend cuts for another six months in an effort to artificially raise prices.
As Iraq’s oil minister Jabbar al-Luaibi said in an interview “Iraq wants prices to rise to $60. This our aim.” Those familiar with the Saudi and Kuwaiti oil empire have confirmed these sentiments and have confirmed that they too are actively seeking a price of $60 a barrel. Though this artificial price inflation may appear disingenuous to overall market conditions, the OPEC price manipulation is in some ways symbolic, as the prices have traditionally been unpredictable on account of external variables from Chinese oil demand to supply disruptions prevalent within drilling locations.
OPEC’s price target offers a window into the seriousness of the intent to artificial raise oil prices, a sharp contrast to years prior when in 2013, the then oil minister for Saudi Arabia, Ali al-Naimi, sought $100 a barrel and caused oil prices to collapse out of his irrational statement. Thus far, OPEC members have been incredibly compliant with their oil-production agreement and have shown signs of unilateral action taken in unison to resemble controlled acts of collusion with the oil market.
Though Iran may serve as the dark horse potentially derailing the OPC’s proposed increase in price per barrel, Saudi Arabia, Kuwait, and Iraq represent over half of the cartels total production and are more than able to rally the market on their cuts alone. As it stands, Kuwait needs higher oil prices to stabilize its rather disgruntled economy that has suffered from price downturns in recent years and Iraq is looking for greater revenue as it continues to fight radical Islamic extremism with the Islamic state, more commonly known as ISIS.
Saudi Arabia, on the other hand, is looking for higher oil prices with minimal volatility ahead of and IPO for a Saudi oil company known as Aramco. The Saudi kingdom is planned to offer up to 5% of the company’s shares outstanding that will serve to diversify its economy and move away from sole oil. This justification for higher prices by the Saudis was verified by a person familiar with Saudi oil policy, who stated that “They need this price [$60] for the IPO of Saudi Aramco.”
Some OPEC officials have grown concerned as to the $60 a barrel price target due to its effect on shale producers. However, OPEC officials have said that everyone can co-exist at $60 a barrel. In a statement, one official said that “This level is what we think will encourage investments, but still would not encourage shale producers much to ramp up output.” As such, we should expect to see sequential price increases in the coming months due to concerted efforts by OPEC to raise prices, which means higher prices when we go to fill up at the pump.