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OPEC’s Pricing Leverage Is Weakening
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As OPEC members met again in June 2015 for the first time since the meeting in November 2014, there is a sense that OPEC no longer exerts the same influence on oil prices. There are 4000 oil companies in the U.S., says one U.S. State Department official, even if OPEC were to cut production the cuts could be matched by shale oil producers in the U.S. quickly increasing output. This is the new reality, say experts. OPEC expects to keep production at the same level of the current production ceiling of 30 million barrels a day in place for the 7th meeting in over 3 years. Algeria and Nigeria, both hurt badly by the drop in oil price, have called for cuts but failed to persuade the Saudis. With Russia unwilling to join a coordinated production cut, there is not much talk about doing this. The Saudis and Iraq have continued to pump more oil, with April 2015 production of 30.84 million barrels a day the highest monthly average since 2012. Other factors also remain in the minds of the Saudis and other producers such as the United Arab Emirates, Kuwait, Qatar- policies on climate change, use of less energy and more from friendlier sources for the same amount of economic output demonstrated by countries such as Germany, advances in technology, energy saving transitions in emerging markets such as China and India.
OPEC's loss of pricing power in 2015
06/01/2015
Saudi Arabia acting as a swing producer adjusted oil production to keep prices from falling in the period before 2015. Following the sharp drop in oil prices to below $50 in early 2015, prices steadied to about $65 for Brent crude in June 2015. The Saudi oil minister Naimi says he takes the long view on oil prices, and decides to continue Saudi production at earlier levels in June 2015. In a period of declining oil prices the Saudis and OPEC continue to produce oil at the same levels as before.
Grouped Articles
OPEC’s Pricing Leverage Is Weakening
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How the decision to not cut OPEC oil production was reached at the November 2014 Vienna meeting
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The decision leads to a drop in oil prices below $70 for Brent crude by Dec. 2014. A decision by Russia and Rosneft not to cut production, along with cuts by Mexico and the OPEC countries including Venezuela, leads to dropping of a Venezuelan proposal for oil production cuts. This turns out to have been a strategic mistake for Russia as the oil price drops accelerated a decline in the value of the ruble, aggravating a situation made difficult by western sanctions limiting capital access on global capital markets, capital flight, and higher inflation. The decision was presented as a Saudi effort to gain market share in the U.S. which had fallen sharply with increased shale oil production. By taking the Venezuelan proposal into consideration the Saudis maintained OPEC unity, while leaving open the possibility of reevaluating the decision in 2015 after observing the movement in oil price and supplies. The move hurts Iran, Russia and Venezuela which face severe economic constraints. It benefits India which faced severe energy import difficulties.
Grouped Articles
Saudi Arabia Sees Oil Prices Stabilizing Around $60 a Barrel
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Oil’s Swift Fall Raises Fortunes of U.S. Abroad
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Each side the Saudis, the Russia, and Iran is looking at the drop in oil prices and how much it can absorb using sovereign reserves as lower prices leads to budget deficits in 2015-2016. Russia and Iran face greater problems with western sanctions, and falling currency values exacerbating rising inflation. Other OPEC countries such as Venezuela and Nigeria face a crisis from falling revenues. In the U.S. this will affect shale oil production as less efficient producers shut down plants, with the overall outlook of lower oil prices being positive.
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Saudi Price Cut Upends Oil Market
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OPEC Members Nearing Compromise on Supply Cuts
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Grouped Articles
IEA Cuts Outlook for Oil-Demand Growth by 22%
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OPEC and Saudi Arabia
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Grouped Articles
OPEC’s Pricing Leverage Is Weakening
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OPEC Chief Shrugs Off Oil Politics
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OPECâs Power Over Oil Prices Has Its Limits
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Oil Minister Asserts Iran Won't Cut Exports Despite Nuclear Standoff
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Saudi oil policy under King Salman in 2015-2016
01/23/2015
Oil policies will be decided by the same group of advisors around King Abdullah. As most advisors, including oil minister Naimi, 79, who conducts OPEC negotiations, are from an older generation, the long term future remains uncertain.
Grouped Articles
New King in Saudi Arabia Unlikely to Alter Oil Policy
New York Times 01/23/2015
Washington Post 01/24/2015
Washington Post 01/24/2015
King Salman of Saudi Arabia Names Mohammed bin Nayef Next in Line of Succession
New York Times 04/29/2015
A Saudi Royal Shake-Up With a Goal of Stability
New York Times 04/29/2015
Young Saudi Royals Rise as Kingdom Tries to Assert Regional Leadership
Wall Street Journal 04/30/2015
OPEC policy and oil prices- 2013-2018
11/30/2013
Grouped Articles
OPEC Rift Emerging Over Iraq Output, Possible Return of Iran
Wall Street Journal 11/30/2013
OPEC, Foreseeing No Glut, Keeps Oil Production Level Steady
New York Times 12/04/2013
Venezuela Could Force Oil Market to Take Stock
Wall Street Journal 02/24/2014
Oil Prices Continue Decline, Pressured by Saudi Action to Defend Market Share
New York Times 10/02/2014
OPEC Members’ Discord Adds to Slide in Oil Prices
Wall Street Journal 10/04/2014
Oil Markets Fly Into a Perfect Storm
Wall Street Journal 10/09/2014
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