Kuwait- There are two factors affecting the oil market nowadays, according to the oil Historian and Analyst Daniel Yergin.
Yergin said the first factor is the deal concluded between OPEC members and other independent producers to cut production, and the second is the fast return of the production of U.S. oil shale with the current improvement of prices.
Yergin, Vice Chairman of consultancy HIS Markit, said Saudi Arabia is taking the lead when it comes to compliance with OPEC’s oil production cuts.
“People got pretty close to the abyss and looked down, and it was pretty deep,” the oil historian said in an interview with Bloomberg.
When OPEC and other major oil exporters agreed late last year to limit production as a way to bolster teetering prices, many saw it as a shaky deal by a spent force.
That perception, though, has changed, and oil prices are up 20 percent since the agreement was reached.
New data published on Monday by the Organization of the Petroleum Exporting Countries (OPEC) showed that the cartel’s 13 members have largely complied with the production cut.
OPEC’s plan to reduce output and boost global supplies saw 90 percent compliance as increasing demand helps to boost the effects of the cut.
Russia’s shift to looking for production curbs was crucial, OPEC officials say. It gave the Saudis, who had insisted they would not cut output on their own, the comfort to agree to limits.
As predicted by many energy analysts, top oil exporter Saudi Arabia is already compensating for underperformers.
Substantial budget deficits in oil-dependent countries caused by low crude prices are creating an incentive to stay honest, according to Yergin.
“I think the reason that they’re sticking to this agreement is necessity and what it means to their own national budgets.”