Tuesday, September 27, in Algiers, most observers were convinced. Scheduled for the next day, the meeting in the city of the 14 member countries of Opec and Russia, the current world’s largest producer of crude oil, would be a meeting for nothing. And when everyone (ministers of oil involved) will take over the road to his capital, the course of the black gold will stay where they are for months, that is to say, to below $ 50 a barrel… Is light-years from June 2014, when the barrel was trading at 114 dollars. Financial analysts, traders and other speculators imagined a meeting played in advance, with the centre of the blockage and the impossibility of giving the two great enemies sworn members of the Opec : Saudi Arabia and Iran. Wednesday evening, at the end of a meeting of six hours, the surprise is total. Opec has reached an agreement on a decrease of its production is destined to bounce off the course of the black gold.
of course, on paper, the deal announced Wednesday evening may seem of little importance. After weeks of negotiations, the oil production cartel will soon be reduced to a level of 32.5 to 33 million barrels per day, compared to 33,47 million in August, according to data from the international energy Agency. Three times nothing… at least in appearance. But if small seems, this reduction of the supply of oil marks a turning point that could prove to be historic.
first, There is the more important limitation since that decided during the 2008 crisis. A reduction that occurs with as many members of the cartel oil suffer economically low prices. Their economies are stagnant or are declining and they are facing budget problems, and rising social tensions. But is mostly a improbable “agreement” between the two countries, although diplomatic relations are broken off : Saudi Arabia and Iran, two great powers in the Middle East that confront each other historically for regional hegemony and that arise each as an advocate of the two great currents of islam, the sunni islam for Riyadh and the shi’a to Tehran, and are in competition on the oil market.
The Algiers agreement was found when Riyadh, rival regional of Tehran and leading member of the Opec, has agreed that Iran be spared of any restriction of production. Tehran is seeking to regain its earlier levels to international sanctions related to its nuclear program. A previous attempt by Opec to reduce production overall was cut short in April, Tehran had refused to participate in the efforts proposed.
The concrete decisions on the objectives of production of each of the members still need to be determined during the summit’s semi-annual Opec, which produces about 40% of the global crude consumed each day (approximately 90 million barrels per day). This will be the 30th November. In the meantime, the financial markets surprised by this decision, seems to play the card of a progressive tightening of oil supply made in Opec. On most of the financial centres where it is listed, the barrel of black gold has appreciated by nearly $ 4 on Wednesday… The economists speak of inflation expectations. To be clear, this change of direction on the part of Opec would not be the first time a tightening of his valve.
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Convinced of this strategy, the financial markets could therefore soon be put to buy, more than usual, of the barrels on the futures market for delivery in three, six or nine months at a price fixed in advance, therefore in the course of today. In this “game” of the forward purchase, if the prices increase by then (the delivery of the barrels) then it is just profit for the investors of today, who are pushing up the price of the barrel. These are, in fact, (as of today) a buyer in the long term (tomorrow) who agrees to buy a barrel of oil, but at a price that is on the market in 3, 6 or 9 months.
The outcome of the Algiers meeting should please the United States which, no doubt, see it as the beginning of the end of a war not declared, triggered by the end of 2014 by the Saudi Arabia, the heavyweight in Opec. It was at the time of creating a barrier to the competitiveness of oil shale, which the United States had become the world’s leading producer. A non-conventional oil (three times more expensive than the Saudi), but with which the United States has achieved energy independence. By opening the valves of oil, Riyadh has strongly contributed, from 2014 to 2016, to increase the price of a barrel of black gold 114 to us $ 46 on average. A fall of prices which has continued to undermine the competitiveness of the oils in non-conventional americans, whose wells are not profitable, on average, above 60 dollars.
The Algiers agreement should also delight number of central bankers. Stunned by the threat of deflation, the FED in the United States, or the ECB in Europe have opened the taps of monetary liquidity in the only hope to restart the consumer, via the credit… But to no avail so far. A rise in the price per barrel might give a bit of fever in the general index of prices (inflation) and away from the spectre of deflation. Provided that Opec take the course of a reduction of supply of crude oil. In the meantime, the markets seem to want to believe it. In the meantime… ”