OPEC Maintains Production Levels While Oil Prices Fall


Although oil prices have fallen significantly over the past six months, OPEC will maintain the same production levels. Their target output of 30 million barrels a day remains unchanged.

Crude oil prices have fallen to $60 a barrel, which is the lowest in five years. This is due to an excessively abundant supply of oil. Market analysts estimate that the market is currently over-supplied by 2 million barrels a day.

The reasoning behind the current glut is that countries outside of OPEC are producing more oil than in years past. Output in the United States, for example, is higher than it has been in thirty years. This is due mostly to technological developments and the new extraction method of hydraulic fracturing.

Some speculators have insinuated that Saudi Arabia has conspired to bring down oil prices in an attempt to harm other oil-producing nations. Saudi Arabia is the world’s number-one exporter of petroleum and the OPEC’s largest producer. Saudi Petroleum Minister Ali Naimi has dismissed these allegations, arguing that the most efficient producers should not, for any reason, inhibit their production and that the real reason behind the drop in prices is a lack of cooperation from non-OPEC nations. Although Naimi is unhappy with the current prices, he is confident that the market will recover by itself and that a temporary drop in oil prices will not impact the Saudi economy in a major way.

Kuwaiti Oil Minister Ali al-Omair agrees with OPEC’s decision to maintain the current level of production, even while oil prices are falling. Iraqi Oil Minister Adel Abdel Mahdi also concurs with the cartel’s decision.

Suhali Bin Mohammed al-Mazrouei, the oil minister for the United Arab Emirates, simply echoed Naimi’s claims: that the main reason behind the recent decline in prices is the “irresponsible production” of producers outside of OPEC. He called on these countries to stop the increase in production because it is harming the market. He went on to say that it is not up to OPEC to correct the market for everyone else.

Of course Russia, the world’s second largest exporter and a non-OPEC member, could cut its production rate. This would potentially help in bringing oil prices back up, but Russia has also made it clear that it will maintain its current level of output.

Market analysts expect that the world will need even less OPEC oil in 2015. However, if prices continue to suffer, investors that have stimulated the oil industry for years will look to other, more lucrative avenues for their money. The falling prices could be especially problematic in the United States, where hydraulic fracturing has become popular, but is still a more expensive method of extraction than traditional drilling.

OPEC producers believe that the market is experiencing a correctional period, and that even though oil prices are falling, they should maintain their current levels of production. According to members of the cartel, stability will return to the oil market when the current low prices of oil eventually separate the efficient producers from the ones with higher costs.

Dac Collins

Bloomberg Businessweek
The Telegraph

Photo by blizzy78 – Flickr License