OPEC: Over-Supply and Under-Demand

Crude oil prices have tumbled to $70 per barrel, which has caused strife between the twelve OPEC member nations.  The cartel met yesterday in Vienna to determine their response to increased international competition and their own over-production.  They decided to maintain their 30 million barrels of crude oil per-day production ceiling, and bite into their own profitability.

US shale oil and reduced oil demand have shaken the conglomerate.  At the current price per barrel, only Qatar and Kuwait remain profitable.  Wealthier OPEC nations, such as Saudi Arabia and Iran, are better positioned to maintain their market share and weather the storm.  The remaining members, who are operating at a loss and don’t have trillion dollar GDPs, are at an impasse.

OPEC could reduce oil production in order to raise the price per barrel.  However, if Venezuela and Ecuador reduce their already overshadowed oil production, they risk losing their market share to their Middle Eastern counterparts.  OPEC itself may lose more market share to non-member producers like the US, Russia, and China.

Increased competition, in any free market, leads to lower prices.  The tipping point we’ve reached in 2014 stands to benefit consumers, at the expense of the struggling OPEC countries.


Sources- WSJ, NYT

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OPEC: Over-Supply and Under-Demand

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