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OPEC Freeze Update

OPEC Freeze Update

While you may be sick of reading about the potential OPEC Freeze, I can think of no topic that is bigger or more important for our industry so I thought I would give you the latest news.

As predicted in our last Newsletter, Iraq is already trying to back out of the Algiers Accord. As we reported, the agreement to potentially agree was vague and ambiguous. It seemed to give certain countries an unfettered right to increase production while implying other countries would limit production. And Iraq, now the second biggest producer in OPEC, is already trying to back out.

Iraq's Oil Minister Jabar Ali al-Luaibi said said this week his country should be exempted from output restrictions as it was fighting a war with Islamic State.

"We are fighting a vicious war against IS," Luaibi said in a briefing for reporters, adding that Iraq should get the same exemption as Nigeria and Libya.Falah al-Amiri, head of Iraq state oil marketer SOMO, said Iraq's market share was compromised by the various wars it fought since the eighties. He added: "We should be producing 9 million if it wasn't for the wars."

Unfortunately, this is what we thought would happen – all OPEC members agree that production should be cut – by their neighbor.

So the question becomes, will Saudi Arabia go it alone? Historically, they have been willing to do so. And I think they realize that their strategy for the last few years – emphasizing market share over value per barrel, has not been as effective as they desired. The Kingdom finds itself burning through their cash reserves with no end in sight. From a numbers standpoint, Saudi Arabia can certainly do it. Will they?

I think we are in for a wild ride.

 

By: Ty Chapman

Five Star Metals, Inc.

Raising the Bar for Customer Service and Quality

Twitter: @FSM_TY

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