According to Robert Yawger (executive director of Energy Futures at Mizuho Securities), OPEC and the entire energy sector should be thanking Saudi Arabia in a Bloomberg TV interview.
Yawger stated that Saudi Arabia would be the best to manage the entire market.
The role of Saudi Arabia in the oil price war, which preceded the coronavirus-instigated lockdowns, was not mentioned by the energy commentator. Saudi Arabia and Russia deliberately increased oil production and exported, flooding the world and driving down prices.
Oil prices even fell below zero. Due to Covid-19, the demand loss that followed made it almost impossible to recover from this deluge. Yawger stated that the market crash “left a terrible scar” on the industry. Under the leadership of the Saudis, it recovered. They have a lot to be thankful for in the rest of OPEC.
The Kingdom was instrumental in managing the market during the months following the crash, even if it was helping mitigate some of the damage inflicted by Saudi Arabia.
Saudi Arabia is perhaps the most conservative of all OPEC members when it comes to increasing production back in. The OPEC group attempted to balance prices and market share. Saudi Arabia believed that oil prices would be the best option, and this was a delicate balance act.
Saudi Arabia had to surrender some market share in the process. It also cut even more oil production than it agreed to, while other OPEC producers–whether due to lack of ability or inclination–overproduced nearly every month that the production cut agreement was in place. Iraq was the largest producer during the production cut agreement. It finds it difficult to manage oil output from the semiautonomous Kurdistan area.
After much internal negotiation, OPEC has now agreed to restore 400,000 bpd beginning in August. A further 400,000 bpd will be restored online in September, and each month thereafter until the cuts are completely reversed.
Analysts and industry groups believe that inventories are down and that more barrels need to be added.
“It’s best to leave it up to the Saudis to manage it. They’ve done an amazing job. Yawger said that they should not flood the market.
