0111 GMT February 25, 2018
Three years ago at this time, oil prices were above $110 per barrel or twice the current level. However, during 2014 and the two subsequent years, oil prices went down continuously to reach less than $30 per barrel in April 2016.
After that, OPEC and non-OPEC countries tried hard to put a floor under crude prices and restore stability to the market through joint efforts and forging a freeze plan even though they had a bumpy road ahead to achieve this.
Many views surfaced to explain why oil prices collapsed and OPEC and non-OPEC could not come to an agreement to bring stability to the market immediately.
Some experts said Saudi Arabia had waged a price war to obtain a larger market share. Others said it was an initiative taken by Saudi Arabia and other OPEC members to force the US shale oil producers out of the market. Some analysts however believed it was part of regional rivalry between Saudi Arabia and Iran which was negotiating with P5+1 on its nuclear program, forcing it to give more concessions before lifting sanctions against its economy including oil exports.
Others contended that it is part of a political tension launched by Saudi Arabia and its Western-backed allies to put pressure on Russia, which supports President Bashar al-Assad in the ongoing conflict in Syria. It was supposed that lower oil prices had been engineered to force Russian to stop supporting the Syrian government.
Apart from these views about why oil prices collapsed dramatically, now the scene has changed in a fundamental way.
OPEC and non-OPEC countries have reached an agreement to reduce oil production by 1.8 million barrels per day even though Russia still supports the Syrian government and Iran has not taken any responsibility in cutting its oil production and goes ahead with rising oil production since the lifting of the sanctions at the start of 2016.
After all, it seems it was a huge budget deficit, nearly $100 billion, at the end of 2015 and the resulting pressures on its economy that prompted Saudi Kingdom to think more seriously about coming to an agreement with other OPEC members and producers outside the organization, including Russia, about cutting oil production.
This goal was achieved during hard talks that were held among the key players of the oil market in 2016, although at first, they failed. In the Doha meeting in April 2016, then Saudi oil minister, Ali Al-Naimi, insisted that Iran, which had announced it would not take part in any freeze or oil cut plan unless its oil production reaches pre-sanctions level of 4 mbd, should take part in any freeze plan on which OPEC and non-OPEC would reach agreement.
When Riyadh could not convince other oil producers on Iran, Doha meeting ended in failure and oil prices fell to around $26 per barrel.
Hoowever, after the Doha meeting, some changes took place that raised the hopes of reaching a kind of agreement. First of all, Al-Naimi was sacked and replaced by Khaled Al-Falih as Saudi oil minister who had new ideas.
Newly appointed oil minister adjusted the Saudi stance so that the way was paved for reaching a consensus within OPEC on cutting oil production in order to lift prices.
Secondly, after many years of disagreements, OPEC members, during the 169th meeting in June 2016 in Vienna, reached a consensus on choosing Mohammad Barkindo as the new secretary general to replace Abdullah Salem Al-Badri. He took office at the beginning of August 2016.
Thirdly, great efforts by Algeria oil minister and newly appointed OPEC secretary general to bring OPEC members together and hold an informal meeting in Algeria on the sidelines of the International Energy Forum in September 2016 was another important step toward reaching a final agreement, first among OPEC members in their ordinary meeting in November 2016 in Vienna and then in December with non-OPEC oil producers.
Despite these ups and downs in the way of collective efforts and reaching an agreement on boosting oil prices, the prices are still way out of what many OPEC members, including Venezuela, consider as fair.
Now, in view of the cooperation between OPEC and non-OPEC, oil prices are twice the figure it was a year ago when negotiations between OPEC and non-OPEC failed in April 2016 in Doha, but at the same time, they are half the amount it was at this time three years ago.
It seems that in addition to some physical factors, including relatively high inventories, some psychological factors are playing a role in oil prices remaining at the existing level of $50-$55 per barrel.
The end of what was called Arab Spring and its destabilizing effects on Middle East countries, the peaceful settlement of Iran's nuclear dispute and subsequently the lifting sanctions on Iran's oil exports are among the reasons that would apparently prevent oil prices going beyond the current levels.
Furthermore, shale oil phenomenon and its viability through technological breakthroughs have changed the assumption of Peak Oil Era to Abundant Oil Era and that is why it is expected that oil prices would remain more and less at the current range of $50 to $60.
OPEC and 11 non-OPEC oil producers, which produce almost two-third of global oil, despite their firm commitment to cuts, which in March stood at more than 100 percent among OPEC members, have not been able to push prices above $60 and it is likely that prices remain at below sixty for the rest of 2017.
On the other hand, it is likely that prices would fall below $50 if OPEC does not extend its cut plan in its ordinary meeting on May 25 and fails to bring global inventories down to the industry's five-year average during the abundant oil era.