JAKARTA (TheInsiderStories) – The meeting of Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Switzerland may closed without an agreement amidst the divide opinion by the members. The countries stance is split over plans to increase production or lower the production.
Saudi Arabia as head of OPEC supported by Russia intends to increase production, while Iran together with Iraq and Venezuela wants the group to maintain a deal on production cuts. Iranian Oil Minister Bijan Zanganeh quoted by CNBC warned OPEC may leave Vienna without agreeing on a path forward for oil policy.
OPEC Secretary General Mohammad Sanusi Barkindo in his speech at the 7th OPEC International Seminar on June 20 stated, over the last 18 months, the cooperation has helped return more balance to the oil market, more optimism to the industry and has had a positive impact on the global economy and trade worldwide.
“We are fully committed to sustaining balance and stability in the market, in the interests of both producers and consumers. In the coming months, we will look to institutionalize this long-term framework for continuity with an all-inclusive and broad-based participation, to look at some of the industry’s pertinent challenges, as well as the opportunities,” he said.
Meanwhile, Suhail Mohamed Al Mazrouei, the UAE Minister of Energy & Industry and President of the OPEC Conference asked the members to look back to the last seminar held in June 2015. It was an extremely challenging time for the oil industry at that time, he said.
“The world’s oil supply was significantly outpacing demand, prices were on a downward trend, and companies were slashing investments and jobs. To many in the industry, it felt that the circumstances surrounding the downturn had completely overtaken their day-to-day work. And there was more hardship to come,” he said.
Al Mazrouei continued, the OPEC Reference Basket price fell by an extraordinary 80 percent between June 2014 and January 2016. The investments were hit hard, with exploration and production spending falling by a massive 27 percent in both 2015 and 2016.
Overall, he noted, nearly one trillion dollars in investments were frozen or discontinued, and stock levels continued to build and build. Total OECD stock levels reached their highest level of over 3.1 billion barrels in July 2016.
Furthermore he said, it was clear that there was a need for broad cooperation to turn the industry around, by bringing forward the rebalancing of the global oil market and helping build longer term sustainable market stability.
“We are continually monitoring the rebalancing process. We continue to consult with all industry stakeholders, taking on board their views and concerns. We will do what is necessary to maintain stability and support global energy security, in the interests of both producers and consumers,” Al Mazrouei said.
The minister add, it is important to remember what happened to investment levels over the past few years, and the fact that the oil demand outlook continues to look robust in the years ahead. In addition, he also see tremendous value in institutionalizing this cooperation into a long-term framework for continuity.
Crude oil price rally continued, after oil stocks in the United States fell significantly after dropped last week over concerns of rising global supplies, as well as Saudi Arabia and other major producers hinted at plans to increase production.
Oil price gains supported an Energy Information Administration (EIA) report that reported U.S oil stocks slumped 4.14 million barrels per week ago. This is the biggest decline since March 30 last.
Previously, Oil prices lost power because Saudi Arabia and Russia signaled to boost oil production. This is done to offset the potential decline of production from Iran and Venezuela. EIA estimates that the production of both countries could fall by 30 percent this year due to US sanctions and the economic crisis.
OPEC and some non-OPEC producers, including Russia, began to hold production in 2017 to reduce oversupply. Since then prices have risen by about 60 percent over the past year.
The OPEC decision will give impact to global oil price and for Indonesia. Even though oil price record dropped in recent days, it still far above the 2018’s State budget assumption of $48 per barrel.
Finance Minister Sri Mulyani Indrawati earlier said an increase by $1 per barrel in oil price could raise state revenue by Rp1.1 trillion. However, the oil price rise also brings negative effect to the state budget due to the increase in subsidy budget.
It does not only affect the fuel subsidy but also the electricity as many power plants generated by fuel and liquefied petroleum gas subsidy. The government set Rp46.3 trillion (US$3.33 billion) in fuel subsidy in 2018, of which Rp7.8 trillion is for diesel subsidy.
The Coordinating Minister for Economics Affairs Darmin Nasution earlier said the government planned to increase subsidy spending in the state budget by Rp10 trillion.
The prospects for the oil market in the second half of the year are uncertain, analysts said, and OPEC believes there is a risk of falling demand.