OPEC risks lower oil prices again if output not cut
Print Edition
OPEC’s policy of maintaining high oil production risks heaping more downward pressure on oil prices, especially with Iranian crude set to enter the global marketplace, analysts say.
While lower prices eat into the revenues of the oil cartel’s members, cheap crude may result in lower output from non-OPEC nations — helping countries like Saudi Arabia preserve their market share.
The Organization of the Petroleum Exporting Countries decided at its meeting in Vienna on Friday against cutting oil output despite sliding prices and ahead of higher output from Iran next year.
Going into the meeting, OPEC — whose members together pump out more than one third of world oil — has consistently struggled to keep production at a target of 30 million barrels per day.
The cartel is pumping out around 32 million barrels daily — a figure that is set to rise in coming months as Iran looks to produce more crude following the lifting of sanctions — while OPEC appears to have abandoned its target following Friday’s meeting.
Despite oil prices plunging by over 60 percent in 18 months, OPEC kingpin Saudi Arabia and the cartel’s other Gulf state members are defying calls to reduce output, which has been a year-long strategy of attempting to preserve market share and fend off competition from non-OPEC and world-leading producers Russia and the United States.
In June last year, crude had traded above US$100 a barrel, but has since plunged on a global supply glut, weak demand growth and a strong dollar.
High supplies are largely due to the arrival on markets of oil extracted from North American shale rock.
But while oil prices stay above current US$40 a barrel on world markets, investment in US output is set to stay resilient.
It is when oil goes under this level for a long period that new investment in shale output risks dropping off, said Natixis bank analyst Abhishek Deshpande.
OPEC’s policy of “keeping high production and keeping prices under pressure has taken more time” than it would have expected, he said on the sidelines of the Vienna gathering.
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