Everything from Saudi exploration to rising tensions with North Korea could radically alter the dynamics of the international market.
Analysts say everything from Saudi exploration to rising tensions with North Korea could radically alter the dynamics of the international market. File Image / Pixabay
Ever since the Organization of the Petroleum Exporting Countries (OPEC) extended the duration of its production cuts earlier this year to March of 2018, speculation has been rampant that the meager cutback volume coupled with the large number of members cheating on their cutback promises would compel the cartel to consider yet another extension - and this seems to be the case, if a remark made Friday by Iraq's oil minister is anything to go by.
Jabar al-Luaibi told reporters during a visit to Moscow that a decision on whether to extend the agreement between OPEC and non-OPEC producers will be taken in November; he added that if an extension is agreed upon, his country, which currently produces 4.32 million barrels per day (bpd), will comply with it.
But as with all things OPEC, its members tend to send mixed messages as well as go back on their word: Iraq's track record of complying with the current cutback initiative has been inconsistent at best, rising as high as 87 percent in April and then falling to just 28 percent in June.
Jabar al-Luaibi, oil minister, Iraq
We are the country that is really committed
And yet, al-Luaibi on Friday insisted that "we are the country that is really committed" and claimed Iraq has gone deeper than its pledged cutback quota (a contention made several times before, and based on the argument that OPEC's tracking figures are misleading and inaccurate).
More importantly, global developments could easily render any extension irrelevant, case in point: Saudi Aramco is reportedly using new seismic technology to re-explore the Empty Quarter of the Arabian desert, which could help to bolster its proven reserves of oil and gas (estimated at 261 billion barrels) before the company offers its shares to the public.
A source told U.S. News, "At current production of 10 million bpd, and assuming reserves of 261 billion barrels, a discovery of 1.5 percent of the reserves replaces the reserves depleted in a year."
Another development that would render OPEC's cutbacks irrelevant is if tensions between North Korea and its Asia neighbours spirals into conflict.
Wood Mackenzie warned in a report that military action could halt crude oil imports to South Korea, Japan, and China, which combined account for 34 percent of seaborne oil trade globally, and thus "severely affect" markets.
However, the consultancy added that "regional stockpiling and increased logistics costs could equally lead to a short-term price premium."
Yet another development, reported earlier this week, could even spell the end of any influence OPEC has internationally: Kenneth Rapoza, business and investment specialist, predicted in Forbes that Russia will develop its shale deposits - the second largest in the world - "sooner than later," resulting in that country and the U.S. setting the tone for oil price management globally.