‘OPEC obsolete: Saudis need players from outside’

© Sergei Karpukhin
Saudi Arabia feels it should partner outside OPEC in order to coordinate an efficient global strategy that would really have an impact on prices, Alexandre Kateb, chief economist at asset managers Tell Group, told RT.

Saudi Arabia and Russia have agreed to freeze oil production in an attempt to counter sliding crude prices.

RT: Could this be the first step towards cutting production or would that be a much bigger proposal?

Alexandre Kateb: These is really a first step as has been said in a reversal of strategy from the part of Saudi Arabia, which is now much more keen to consider a new strategy to drive progressively oil prices back from this floor they have been reaching, so to say, over the last few weeks. And it is very important that this reversal of strategy is being coordinated with Russia, which is another important swing producer in the oil market. This is especially true, given the fact that there is this kind of distrust between Saudi Arabia and Iran.

Now the Saudis feel they need other players outside OPEC in order to coordinate a global strategy that would be efficient and that would really have an impact on prices. This is very encouraging. Now, how the market will interpret that? I think there is a lot of questions in the market, because we will have to see how this will be implemented over the next few weeks; how this could be countered by Iranians, who are keen to develop their oil production and oil exports, so this will weigh negatively on the total supply and demand balance over the coming weeks and months.

What is more important is that this is really the first step to overhaul the OPEC architecture and all the governors of the global oil market. I think this is a strong signal that OPEC is now obsolete and there is a need for a new cooperation mechanism and new institutions to coordinate strategies between oil producing countries.

RT: Why are crude prices sliding again if there's been an agreement to freeze output?

AK: Actually, I think the market maybe had been expecting something stronger, maybe a reduction in capacity or something in that vein and it has been disappointed, and this would explain this reaction. But overall, I think it will be a positive signal and the market will start to re-appreciate the potential platform for oil prices. We will see that reflected over the next few weeks. You have also to factor in the dollar, the monetary component, if you like, of this market. When the dollar is strong usually oil prices are weak. Oil is also influenced by what is going on on the monetary front, and we have this expected ECB [European Central Bank] decision to do whatever it has to do to counter deflation in Europe. Therefore, the market is expecting a stronger dollar, and this has an impact overall on oil prices, notwithstanding OPEC strategy.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.