The OPEC cuts are looking…
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OPEC officials told The Wall Street Journal last week that the bloc’s biggest members are hoping for a $60 barrel from their oil supply rebalancing efforts that are currently underway.
The anonymous sources said that Saudi Arabia, Iraq, and Kuwait would support an extension of the cartel’s existing 1.2-million-barrel per day production cut during the summit in Vienna next month.
$60 barrel prices would allow for additional investment in the international energy sector, without allowing the United States’ shale producers too much additional financial leverage to undo the effects of the output cuts.
“Iraq wants prices to rise to $60. This our aim,” Iraq’s oil minister Jabbar al-Luaibi told WSJ in an interview. Other sources corroborated Saudi Arabia and Kuwait’s support of Iraq’s stated goal, which will barely generate enough revenues to sustain Baghdad’s ongoing war with the Islamic State in Mosul.
The countries that are a part of OPEC control 40 percent of the world’s oil exports, meaning that their actions hold large sway in the direction of the oil price. Still, major disturbances in Chinese oil demand, Russian output, or other aspects of geopolitics can overpower the effects of the bloc’s efforts.
Kuwait needs the price hike to fill a $26 billion hole in its national budget. For Saudi Arabia, a $60 barrel would serve as a healthy price for the much-awaited initial public offering of Saudi Aramco in 2018.
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Some of the recent attempts at valuing Aramco have placed the company’s total worth at somewhere between US$400 billion and US$1 trillion, according to various assumptions about the tax rate, the cost of capital, ability to generate cash flow, oil price projections, and potential political sensitivity for future investors.
But Saudi officials maintain that the company should be valued at roughly $2 trillion, which if true, would make it the largest IPO in recent history.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…