While the oil prices have been witnessing a continuous dip in the Gulf and across the globe eventually, Arabic nations are striking every effort possible to regain the balance and bring the rates back to a stable position. Building on similar lines, an alliance between the OPEC and non-OPEC nations seems like a favorable step in the same direction. Changes in oil prices have happened in quite a conspicuous manner, with the Brent oil rates witnessing an ascent of 10.98% to USD 33.36 per barrel.

Another approach that seems to work in this direction would be cutting down the OPEC oil production rates, a thing that is to have most direct implication over the rates. Experts have collectively agreed upon the fact that cutting down the production by 2.2 million barrels per day would see the rates shooting up to USD 60-70 per barrel in less than two weeks.

The Deal Between OPEC and Russia

Being the leader in most of the OPEC operations, Saudi Arabia has begun to work on a deal with its Russian counterpart to cut down the OPEC production by 5%. The deal seems so effective that just as the news broke, oil rallied up from USD 28 to 36 per barrel. However, the economists in the region are yet waiting for an actual agreement, the geopolitical difference between the two countries seems like a concern that might create a rift in the process.

For people might debate over the mistrust between the two nations, Russia has been quite active in making the deal happen by reducing its own production by nearly 500,000 barrels per day. Now considering this bold move, the OPEC counterparts and Saudi Arabia majorly is to follow the trend to strike the right balance in terms of oil exports.

How Would the Deal Affect All?

While the deals might go on to happen, the current situation of the market is so volatile that any news of an agreement between the OPEC and the non-OPEC countries would readily shoot up the prices. The question to ponder over is, would the deal make any long term changes?

There are a number of analysts who have pointed out the fact that this jump would be highly unsustainable, mainly due to the boom in the US Shale oil market. Going back in time, you would realize that the shale oil boom in the first place caused the oil prices to go down from USD 115 per barrel in 2014 to near-about USD 60 per barrel in 2015. However, with time the dip in oil prices made it difficult for the US corporations to extract oil with the same financial efficiency. As ascertained by Ahmad Al Najjar, an economist based in Cairo, the increase in prices would cause another boom in the American shale oil market.

The Global Impact

It goes without saying that the crash in oil prices has hit all in the region, be it the Gulf corporations or the US corporations going bankrupt owing to the low revenues they are making. Energy subsidies in a number of Gulf nations have been diluted down and a VAT is on the cards to be introduced by early 2017. With the Saudi regime and other OPEC nations having agreed upon a ‘proportionate production’, a stabilization in the non-OPEC part of the world (the US and Russia majorly) can also be observed. Still, it’s too soon to make any prophecy!



This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
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