The Oil and Gas Industry's silver lining might be around the corner!

Blog Post created by sksingh on Oct 5, 2016

The Oil and Gas Industry is currently abuzz with the recent OPEC deal, wherein an agreement to cut back on production was reached. This marks the first time OPEC stepped in to manage production since 2008, when production quotas were abandoned due to the prevailing global economic crisis.

The biggest monthly gain since April was recorded after the Organization of Petroleum Exporting Countries agreed to limit production for the first time in eight years, at a meeting in Algiers. The unveiled plan involves reducing the production to a range of 32.5 million to 33 million barrels a day, with the hope of providing a boost to the oil price. The outlined accord, thus, indicates cutting back in production by as much as 750,000 barrels a day. The quotas for the same are scheduled to be decided at the OPEC’s next formal summit in Vienna, on November 30.

Although the oil prices have been falling for almost two years, Saudi Arabia, the most influential member of the OPEC, did not cut back on production. A major stumbling block in reaching an agreement till date has been Iran’s commitment towards boosting its production. Both the countries, being arch rivals, had refused to sign on to any production curbs unless the other did, too.

The OPEC deal finalized on September 28, became possible due to the mediation of Russia, Algeria and Qatar. While countries like Venezuela and Algeria can ill afford to lose oil revenue by reducing production, OPEC has said that Iran, Libya, Nigeria and maybe, even Iraq, would be treated differently, without further specifications. Russia, on the other hand, has shown inclination to be a part of the OPEC plan and as obvious as it is, if more non-OPEC member get on board, prices will surely become higher. On October 3, oil rose by more than 1%, with Brent settling above $50 a barrel for the first time since August, after Iran called in for support from non-OPEC members.

Amidst all the skepticism and uncertainty, there is a fairly good chance that the odds will work out and this deal will succeed in raising the oil prices by at least $10 a barrel, by early 2017. There are plenty of governing factors, of course, and a lot rests on what will be discussed in November at the OPEC’s next summit in Vienna.

Well, this might just be the long overdue silver lining we’ve all been looking for. The rest, as they say, only time will tell.