Saudi Arabia has agreed to a surprise OPEC production cut but remains determined to exert leadership over the world market, analysts say.
Saudi Arabia agreed at an informal meeting in Algiers on Wednesday to an OPEC production curb of several hundred thousand barrels per day (bpd) to boost weak crude prices.
Under the Algiers deal, OPEC output will fall to 32.5-33 million bpd from 33.47 million bpd in August, and Iran will be exempted from the cuts.
“By facilitating the deal, Saudi Arabia has scored an important political point. It has shown that it is still in control of OPEC. It has reasserted its leadership,” said Kuwaiti oil analyst Kamel Al-Harami.
In doing so, “it has made some concessions” to Iran and other OPEC members, Al-Harami said.
Saudi Arabia has long been the only producer with spare capacity, allowing it to raise or lower production to influence the market under its traditional policy.
But since 2014 it abandoned that approach to focus on protecting market share and drive out less-competitive players, including US shale oil producers.
That policy raised questions about the relevance of the cartel which produces about 40 percent of global output.
“Many OPEC members are suffering economically from low prices. Their economies are stagnating or going backwards and they face budgetary issues,” said Greg McKenna, chief market strategist at forex broker AxiTrader.
“So it appears the fiscal imperative seems to have trumped OPEC’s internal politics.”
London-based Capital Economics said a possible explanation for the deal was “that Saudi Arabia felt that any form of agreement, however flimsy, was needed to shore up OPEC’s credibility.”
Global oil prices fell from more than $100 a barrel in June 2014 to near 13-year lows of less than $30 in early 2016.
“Saudi Arabia have perhaps reassessed their dumping oil strategy to put US shale out of business as the pressure on their budgets has clearly reached a tipping point as well,” said Jeffrey Halley, senior market analyst at Oanda trading group.
He sees a “major shift” by Saudi Arabia in allowing Iran to increase output.
Other analysts were more cautious.
“As things stand, the deal doesn’t seem to amount to much,” Capital Economics said, expecting Riyadh to “rely on further fiscal consolidation, rather than an outright shift in oil policy.”
An oil industry source said it is too early to say there has been a change in Saudi policy but that internal economic factors could be “a strong driving force” for a potential change.
There is “no major shift,” in Saudi oil strategy, Spencer Welch, senior consultant at ISH Energy said.
“They have said for a while they would be willing to do a deal if others were also involved. It appears others have agreed,” Welch told AFP.
A former Saudi oil official said the new deal does not greatly change Saudi output even if the Kingdom reduced production by 500,000 bpd.
“That will only take Saudi production back to January levels,” Mohammad Al-Sabban, former senior adviser to the Saudi oil minister, said on BBC television.

Source: Arab News