the us must cooperate with others and stop pressuring opec
Last Updated : GMT 19:07:01
Arab Today, arab today
Arab Today, arab today
Last Updated : GMT 19:07:01
Arab Today, arab today

The US must cooperate with others and stop pressuring OPEC

Arab Today, arab today

the us must cooperate with others and stop pressuring opec

Wael Mahdi

The statement issued by the US State Department last week was unprecedented in the history of the relationship between OPEC and the US administrations.

Political pressure from consuming countries was always there on OPEC whenever prices have reached unfavorable levels. This time, however, the pressure is not being communicated in a coherent and constructive way that would help OPEC meet its objectives in stabilizing the market.

The key phrase in all messages from the US is “spare capacity.” This is the amount of idle production capacity that OPEC countries put aside to meet sudden disruptions in global supplies.

The International Energy Agency (IEA) describes effective spare capacity as the amount of oil that can be brought online within 30 days and kept running for 90 days.

In theory, OPEC is endowed with massive oil resources, but in reality not all of this oil can be tapped and produced swiftly.

Strangely, it seems that US policymakers lack a deep understanding of what spare capacity is, and what it is used for.

Looking at the various messages coming from Washington, DC and their timings, it can be concluded that US politicians want OPEC’s spare capacity to be a tool to bring down prices. Although it plays a great role in shoring down prices, that’s not what spare capacity is all about.

Its main purpose is to limit the fear in the market in case of a supply disruption so there is a baseline amount of oil that must be kept untouched at all times. The use of idle barrels should be limited to extreme cases when there is no longer any producer who can pump oil.

Riyadh has always maintained a policy of keeping at least 1.5 million barrels per day (bpd) of oil idle at all times. And as Saudi fields shared with Kuwait in the Neutral Zone are shut down, Riyadh must be prudent about how much of its spare capacity it can use, and when.

Leaving the market with a thin spare capacity at a time when more disruptions are expected just to respond to short-term price fluctuations is a very risky endeavor. The purpose of spare capacity is to address temporary and short-term supply disruptions. Using spare capacity over the medium or the long-term is the wrong approach.

The situation is similar to taking a bleeding patient to the emergency room. After the bleeding stops, the patient must be transferred to a specialized doctor who can offer care over a long period of treatment if needed. But asking the ER doctors to treat the patient over a very long period contradicts the main purpose of ER, which is to handle “emergencies.”

The statement that the State Department put out seemed at face value to capture the concept of spare capacity, but reading more deeply into it and understanding the context in which it was said, it seems that it aims to encourage OPEC to lower prices.

The US State Department said in its statement that the US “continues to engage with OPEC countries and we encourage them to utilize their spare capacity to ensure world oil supply meets the demand.”

Oil demand doesn’t generate in a vacuum, and it is based on nominations from customers. In the case of OPEC, countries such as Saudi Arabia, Kuwait and the UAE are honoring their contractual commitments. They supply their customers with every barrel they ask for, and this known in the market through allocations that news agencies such as Bloomberg report.

OPEC can’t “pump and dump” crude into the market. And if the US wants OPEC to replace Iranian crude, Iran’s customers must come first to suppliers and ask for that. So far many refiners in India and China have continued buying crude until further notice.

The US statement doesn’t do any good when it says OPEC and its allies led by Russia “continue to withhold oil production.” In fact, the alliance known as OPEC+ raised output by more than a million bpd since June. The statement only gives credit to the US, saying it is “doing its part” to add oil supply to the market.

Russia is already taking steps to address imbalance in the market but it is also nearing its full output potential. According to recent media reports, it was pumping crude last month at record levels of more than 11.3 million bpd, a significant increase since June.

Despite the many claims, it was clear after the Algeria meeting that spare oil production capacity in OPEC countries was thin. The only country with any substantial capacity is Saudi Arabia, but even that is getting thinner and it now stands at 1.5 million bpd, Saudi Energy Minister Khalid Al-Falih told reporters in Algeria.

The non-availability of enough spare capacity is one of the reasons why OPEC+ has not been able to bring compliance rate to 100 percent till now.

In conclusion, the market is becoming tight owing to factors the US played a role in. And pressuring OPEC to pump more will make the spare capacity thin and raise prices further.

It’s time for the US government to cooperate with others and coordinate policies with them. It’s not the time for blaming others and asking them to take steps that may backfire. When it comes to managing the global market, OPEC and now OPEC+ have a better track record than the US, so the alliance knows what it is doing more than the US.

Better then to let OPEC+ do its work with less pressure and more cooperation in a “laissez-faire, laissez-passer” environment.

From: Arabnews site

 

GMT 14:51 2018 Monday ,01 October

OPEC puts off tackling the big issues

GMT 19:29 2018 Sunday ,09 September

Saudi Aramco turns to tech to power future of oil

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

the us must cooperate with others and stop pressuring opec the us must cooperate with others and stop pressuring opec

 



Arab Today, arab today Modern colorful bedroom renovation

GMT 11:23 2017 Thursday ,21 December

Modern colorful bedroom renovation
Arab Today, arab today For the Variety of Interior Design Styles

GMT 11:14 2017 Tuesday ,19 December

For the Variety of Interior Design Styles

GMT 08:19 2017 Tuesday ,12 December

Fares Karam will not sing in Lebanon in New Year

GMT 10:28 2017 Thursday ,06 July

Mona Wasef chooses her roles carefully

GMT 07:59 2017 Tuesday ,28 March

Actor Talaat Zakaria praises Adel Imam visit

GMT 12:20 2012 Wednesday ,18 April

Media head refuses to cut salary

GMT 07:13 2017 Wednesday ,15 February

Donia Samir Ghanem support for charity works

GMT 09:59 2017 Saturday ,16 September

Melissa happy for reactions to her latest clip

GMT 06:59 2017 Sunday ,12 November

Climate target too low and progress too slow

GMT 08:28 2018 Saturday ,13 January

at detention of Palestinian 'slap video' teen

GMT 12:57 2017 Thursday ,21 December

Dozen hurt as car hits crowd in Melbourne

GMT 04:06 2017 Thursday ,21 December

Wild Oats yacht hit by lightning

GMT 23:51 2017 Tuesday ,19 December

Southeast Asia celebrates New Year

GMT 07:20 2017 Friday ,15 December

New island offers clues in search for life

GMT 11:24 2017 Saturday ,29 April

Artist Maia Diab denies retirement

GMT 08:07 2017 Tuesday ,05 December

accused of sexual harassment

GMT 15:55 2017 Tuesday ,08 August

Hamada Helal ended filming “Hamza’s Bag”
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday