OPEC unlikely to cut its current crude oil production levels

OPEC unlikely to cut its current crude oil production levels

By SHAILENDRA TYAGI | NEW DELHI | 28 November, 2015
Shaybah oil field in Saudi Arabia’s Rub Al-Khali desert is a major oil refinery in the OPEC country.
Organisation of the Petroleum Exporting Countries (OPEC) is unlikely to cut their high crude oil production levels in their upcoming meet on 4 December 2015, a decision that oil importing countries like India will rejoice. Maintaining their current production levels with the possibility of increasing it further would mean that oil prices would continue to remain depressed — an outcome of the Saudi dominated oil cartel’s desire to hurt high cost shale oil producers. Such outbidding of their North American counterparts is also helping the 13 member oil cartel group to enhance their market share — currently about 40% — in the global oil market. “I expect that the OPEC will not implement a production cut as members have not yet experienced sufficient financial pain to induce them into doing so,” says Robert McNally, former energy official with George W. Bush and currently head of the US based energy consultancy, the Rapidan Group. He adds that OPEC may actually increase their production target from 30 to 31 mb/d to accommodate the return of Indonesia into their fold.
Although lower prices of crude oil have not yet helped the OPEC to gain significant market share but if the low oil price regime persists then the organisation would surely increase their market share. Oil analysts feel that a low oil price is acting like a double edged sword for the OPEC. So, despite being currently hit by low oil prices, they seemed to have prioritised future market share over high oil prices and higher revenues for now. Most OPEC’s members, especially the poorer ones like Venezuela and Algeria, depend on crude oil export earnings to support their finances. Saudi Arabia, the rich gulf member of the cartel, currently produces about a third of OPEC’s supply and therefore, its persuasive power to keep or even enhance OPEC’s production levels is likely to prevail over the hopes of OPEC’s poorer members who desire high oil prices. 
Hydraulic Fracturing, a technique mastered by North America to extract crude oil from shale rocks, had threatened the marketing prospects and the relevancy of OPEC’s oil in the global oil market. And therefore, throwing the shale producers out of the global oil market has assumed a top priority among OPEC countries. OPEC had been a traditional supplier of oil to that continent. Oil experts feel that if the low oil price regime prevails, the organisation’s importance in the global oil market is likely to increase further. Unlike the shale producers, OPEC can produce oil quite cheaply. Moreover, since OPEC collectively holds about 80% of the global oil reserves, their say in determining oil prices is not likely to diminish in the near future.
 

Add new comment

CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.