Overview on OPEC's Production Cut Decision

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As we already know, the OPEC members have finally agreed to cut production in November; followed with the non-OPEC countries in December 2016. For the moment, the deal is valid for six months but there is more supply in the world than the oil itself, evidently effecting the oil prices. For this reason, the agreement is expected to help to bring the oil prices to the desired level in the long haul.

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Referring to the developments in the oil market; it is not enough to focus only on the supply-demand balance, caused by producers and as well as the consumers. The rule of the oil market is not based on this arithmetic production-consumption relationship. Besides, the effect of the speculators must not be neglected. On the other hand, it is not correct to expect prices to change in a sustainable manner right after any oil-related decisions. The smartest way would be thinking in the long-term because, in the meantime, there are buying and selling contracts that countries set and these contracts can set a trend for prices at least three months in advance and the major misperception of the oil prices to rapidly change at all domestic markets can be prevented.

Yet, one of the most supportive country has been Kuwait; which is largely dependent on petroleum and natural gas incomes and is the fifth largest oil producer with an average daily production of 2.7 million barrels of oil. The Kuwait economy is smaller than the other OPEC members, has a higher volatility due to the decrease in the price of Oil in the last two years. This situation has effected not only the producers but also the oil consumers a a whole. There was a positive perception of clean energy sources, especially after the United Nations Framework Convention on Climate Change in Paris and Marrakesh Meetings of the Parties. This has reflected positive developments in clean energy in Kuwait. Interestingly, Kuwait wil also invest in renewable energy and 15% of the installed capacity of the country by 2030 will be made up of renewable energy sources.

Evaluating the sustainability of the petroleum production, the cut-off could negatively effect OPEC’s price-balancing steps, as the market cold be effected positively or negatively from the comments made.

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