At last, and of course for the time being, crude has been tamed by the Saudi led cartel –OPEC. Prices are rising above the moderate level for the first time in two years. After touching $60 per barrel, Brent price has stayed on 60 plus for a considerable time.
But who arranged this happy turnaround for producers? And most importantly how long will it last? Certainly, it is not the OPEC’s lone work that rejuvenated the black gold. Had it been capable as in the past, it would have done in the last few years itself.
The late November agreement among OPEC and allies to cut production has made the turnaround. As part of the agreement, the OPEC decided to continue its current production cut strategy by one more year. This time, the cut is actively shared by a dozen non-OPEC members led by top oil producer - Russia.
Last few years price movements and reaction pattern of the OPEC showed that the cartel is not able to control crude prices as in the past. Producers outside OPEC are getting stronger and without their cooperation, prices can’t be tamed.
With declining production share, OPEC went for political consensus with other producers especially Russia. The result was the creation and consolidation of the OPEC and allies group; an extended loose cartel.
Other major player – the US shell producers are trying to consolidate and create revenue according to market analysts. They may look for pleasant prices and the current $60 plus is good for them to earn some revenue.
In conclusion, crude may not deviate much and for a greater time at the newly arrived semi-equilibrium price of $60 per barrel.