The Organization of Petroleum Exporting Countries (OPEC) announced on Thursday it will keep the current oil production quota of 30 million barrels a day, a figure that has already been causing low prices at the pump for several months. After the announcement by Ali Al-Naimi, Saudi Arabia’s oil minister in Vienna, Austria, where the oil ministers were meeting, the price of American crude oil fell below $70 while Brent crude oil, which is considered a global benchmark, fell to about $73, the lowest price in four years.
The 12-member group has seen a decline of more than 30 percent in oil prices in recent months as global output has exceeded demand. Analysts predict this will continue into 2015. The country adds one million barrels of oil per day to the world market.
OPEC is yet to find a way to deal with new competition from the United States, Brazil and Russia. Japan and Europe, who import large quantities of oil, will also benefit from low crude oil prices. The organization seems to have decided that the low prices will ultimately lead competitors to cut production.
Abdalla El-Badri, OPEC’s secretary-general, said the organization does not want to get into a state of panic. He told reporters after the meeting that OPEC will keep observing how the market behaves.
Lower prices are likely to impact oil producers in the U.S negatively. However, consumers’ savings at the pump will leave money in their pockets to spend in other areas, boosting the economy in the long run.
Kuwait, Saudi Arabia and United Arab Emirates are unlikely to feel the effect of the slump in oil profits owing to savings they made when prices were high. However, OPEC’s decision to keep the current oil production quota, that will continue to cause low prices at the pump, will impact some of its members negatively. An analyst at Roubini Global Economics, Rachel Ziemba, indicated in a study she completed recently that Venezuela, Iran and Algeria will struggle to finance their governments owing to the slump in crude oil prices.
Bhushan Bahree, an analyst with IHS that tracks OPEC, said the decision not to decrease output was a major shift from OPEC’s past behavior. He said the organization used to manage oil prices in the past, but now it is actually defending continued production.
Oil production in the United States has impacted the overall world production. The U.S. has lowered the amount of oil it imports from OPEC, forcing the organization to compete for other markets in Europe and Asia. This has forced some oil-producing countries to have to find oil storage space as a result of reduced markets. Iran is storing as much as 100,000 barrels of oil per day in oil tankers, as it tries to find buyers. Bahree said this competition presents the greatest threat to the organization since the 1980’s.
OPEC’s decision to keep the current oil production quota of 30 million barrels a day, leading to low prices at the pump, is causing some divisions in the organization. While some countries have stashed away enough savings to survive the low-profit season, others are hoping to increase production on their own. Iraq would like to increase its production to more than the three million barrels it is currently producing per day, so as to make up for years of lost output. Iran would also like to increase output, if sanctions the United Nations has placed against it are lifted.
By Benedicto Ateku