Is OPEC smart to want cooperation with non-members permanent?

The Organization of Petroleum Exporting Countries (OPEC) and its non-members have always maintained a relationship that is only a short crawl away from adversarial. Each views the other with a keen sense of suspicion because oil prices allowed a little wiggle room.

Oil prices came crumbling in the first quarter of 2016, after tumbling off a high of over $100 per barrel, it found a floor at around an average price of $45 per barrel for most of 2017 and managed to rise to over $71 last week. The volatility in oil prices has made to important for both parties to cooperate.

Now OPEC wants a permanent marriage of what should have been a union of strange bed fellows. The group is planning to develop a mechanism for permanent cooperation with the parties to the oil production reduction transaction during 2018, and then discuss it with non-OPEC countries, Bakheet al-Rashidi, Kuwait’s Oil Minister told RIA Novosti, an Azerbaijani newspaper.

“We saw the benefits of our cooperation in 2017 and we are interested in the OPEC countries and independent producers maintaining and developing cooperation, and we think that the best way is to create a permanent structure that will become the cornerstone of such cooperation in the future if the market,” the Minister said in a quote printed by the media.

The comments of OPEC Secretary General Mohammed Barkindo back in May 2017 that “we do not expect a divorce in this marriage” seem to be coming true.

“We need to see the confidence level of investors within the companies and financial community improving about the long-term prospects of the market, and that is why my guidance to my colleagues is that we should not limit our efforts to 2018,” Saudi Energy Minister Khalid al-Falih said, just before he chaired a monitoring committee meeting in Oman.

The cooperation between both groups have indeed come with huge benefits seeing oil prices recover despite US shale producers turning on the taps. At the end of the meeting last week, Alexander Novak Russian Energy Minister said that OPEC countries and non OPEC members will hold joint consultations every six months or a year as the deal progresses.

“We have discussed this with OPEC, and we believe there is benefit to everyone in continuing dialogue and interactions,” Novak said. “We believe that it can stay in consultations or in a different framework which will benefit all the consumers and the market.”

Brent crude futures are at $70.40 per barrel, down 3 cents from their last close, after dropping as low as $70.07 on Friday. U.S. West Texas Intermediate (WTI) crude futures are at $65.52 a barrel, up 1 cent from their previous close, recovering from a session-low of $64.91 a barrel, according to Reuters.

This is predicted to even get better. According to the forecast of the Energy Information Administration (EIA) of the U.S., the country expects to overtake Saudi Arabia in terms of oil production by the autumn of 2018. In September, oil production in the U.S. is forecasted to rise to 10.08 million barrels per day and will grow to 10.34 million barrels of oil per day by the end of 2018.

This will make the need for cooperation ever significant as members would rather shave off some output if it means they will profit from few viewer volumes sold.

In November 2016 and in reaction to dip in oil prices, the OPEC summit was held in Vienna, where OPEC members reached an agreement on reducing oil output by 1.2 million barrels per day. In December 2016 oil producers met again and ended with signing an agreement to reduce oil production by a total of 558,000 barrels per day starting from January 2017.

OPEC and its partners have decided to extend its production cuts till the end of 2018 in Vienna on November 30 and in January, members agreed to keep the cuts to help the market rebalance. For now, the prescription seems to be working and the group would want to keep it that way.

ISAAC ANYAOGU