OPEC to Sustain Output Despite Market Conditions

By Thomas Cullen,
International Business Editor

The Organization of the Oil Exporting Countries, otherwise known as OPEC, failed to reach a decision on the total output that they will collectively produce. The debate amongst the OPEC-member nations in a summit in Vienna on December 4th did not materialize into any changes in the current total output quota of the organization according to CNN Money. This failure to compromise has resulted in no change in the 30 million barrels of production that are expected to be produced. This decision is expected to be extremely detrimental the higher- cost producers of petroleum such as Nigeria and Venezuela. Crude fell to a low of $39.60 a barrel on that Friday, but it has been previously floating at around $40 a barrel before the meeting. This is a far cry from the $100 a barrel back in June 2014. The discord among the members of the organization comes from the fact that Saudi Arabia, the most powerful nation among them wants to continue producing the same among of oil despite the falling demand and price worldwide. The less powerful countries in the organization who can not produce oil at as low of a cost as Saudia Arabia are going to continue feeling a greater economic strain.

OPEC Secretary General Abdalla Salem El-Badri of Libya said that “We decided to postpone this decision until the next OPEC meeting when the picture will be more clear.” This means that higher production will continue and part of the reason for this, according to Reuters, is that there is uncertainty as to the amount of oil that Iran will export next year as a result of the embargo being lifted. Uncertainty over Iran’s production is not the main reason for this decision- Saudi Arabia has been interested in using the low oil prices and demand to put pressure on other non-OPEC countries that are producing oil. The United States is one of those countries that has now been able to rely less on foreign energy imports because of the shale hydrocarbons and natural gas boom. According to Energy Information Administration, daily shale production in the US is supposed to decline 118,000 barrels a day in December. MarketWatch.com quoted Charles Perry, the CEO of Perry Mangement, when he said that Saudi Arabia’s strategy of applying market pressure on non-OPEC competition will only “eliminate the weaker oil producers via bankruptcy and consolidation with the stronger companies…the ‘survivors’ will be much stronger competitors.” US oil output is at a one-year low, but this is not alarming because current US oil production of 9 million barrels a day is double that of how much was being produced in 2008.

Al-Ubaydli, a senior research fellow at the Mercatus Center at George Mason University, said that “Defending its market share is the right call in what has almost become a competitive market.” This comes from the belief that one-day oil prices will eventually rise, which is expected to cause shale oil production in the US to increase as opposed to the increase in imports. Therefore, the most powerful nations in OPEC think that they should hold their ground regarding production so that they can keep their market share up.

A version of this article appeared in the Tuesday, December 8th print edition.

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