OPEC and bet on market stability
The Ministerial Council of the Organization of «OPEC» decided at its regular semi-annual report, which was held Thursday in Vienna, to maintain the production ceiling (30 million bpd) agreed since December (December 2011), despite the low price of a barrel of oil about 30 percent since June (June). It is known that «OPEC» production accounts for about 40 percent of the total global oil production.
The meeting was permeated the big and important differences between the Member States, some insisted he will not cut production, and demanded some parallels to cut another million barrels per day, and some insisted on a third cut of two million barrels per day. In the end, states agreed not to change the current level of production note that decisions are taken by consensus.
And supported Saudi Arabia’s proposal to maintain the current production because they do not see the benefit in the cut now, most of the production increases are from outside the «OPEC», as consensus and commitment of all members of the «OPEC» is not available on the production cuts will mean that Riyadh would bear alone the burden of cuts, while other countries will continue as it is. And put forward the policy of Saudi Arabia logo «reliance on markets» in determining oil prices, instead of clinging to the price of almost $ 100 a barrel, whatever the market conditions changed.
What has changed in the markets to adopt this policy? It coincided global economic and financial variables, are the first, lower demand for oil, there is a slowdown or contraction in Europe, China and Japan, in addition to the rising value of the dollar against other major currencies, making oil imports more expensive, including reduced the size of the demand. And emerged Secondly, the rise in global production volume, especially from outside the «OPEC», and the impact of speculation in turbulent times such as those experienced by the world, as everyone expects a decline in prices without knowing the minimum that will stabilize it at the end.
To make matters worse for «OPEC» economic outlook gloomy for 2015, indicators suggest the possibility of the growth of the global economy about 3.6 percent only next year, compared to about 3.2 percent this year, which means that an increase in oil demand will be limited 2015. suggested studies and Research’s «OPEC», under the prevailing economic conditions, increased demand for oil to 1.1 million barrels per day in 2015, which will raise the total global production to about 92.3 million barrels a day.
But the organization predicted at the same time that non-member States than in «OPEC» production to meet these simple increase in demand, Expectations indicate that non-members of «OPEC» will increase its production in 2015 about 1.4 million barrels per day, constitutes the entire production from outside the «OPEC »about 57.3 million barrels a day. And the source of most of this increase is production in Canada and the United States, any other shale oil production in the sense, in addition to increasing production in Brazil.
It is clear that the policy of «reliance on market» to specify the price at which aimed to «OPEC» now will lead to a decline in the price of oil. Can not predict the limits of the minimum price could be recorded, but estimates indicate that the cost of shale oil production capacity of 50-70 dollars per barrel, which means that the deterioration in the price eventually will inevitably affect the prospects of expanding the production capacity of the oil is traditional, especially shale oil, and in the the volume of investments in this sector which eventually amounted to about $ 200 billion annually in the United States.
The challenge is not to stop shale oil production but reduce the speed of growth in excess of one million barrels per day annually in the United States, with a total production is now about 3.4 million barrels per day. The goal is to be a closure of the high cost of production fields, or non-economic under the new price level.
Previous experiments indicate at low prices on the difficulty of the lower end, which can be reached by prices only after long and difficult negotiations levels. The tests also indicate the need to engage in talks with non-Member States in «OPEC» such as Russia and Mexico. But there is a big difference in this round. Disagreement most important is not with these two countries, despite the possibility of closing some Russian fields with a high cost, but it is now important to negotiate with dozens of American companies producing oil shale, and this is difficult because it is a small, independent companies and is not known at the level of world oil modernity established industry, let alone negotiate with the US government which is not permitted by US law to be considered «OPEC» monopolistic organization.
The current phase may be a price war phase aimed at achieving long-term goals of trying to restore balance to the market, including not providing an opportunity for high prices to support the non-conventional oil or sustainable energy development at the expense of conventional oil. And caused this stage negative economic outlook for the first half of 2015, in addition to the high investments in unconventional oil development, and not try to invest in increased oil consumption in the United States, despite annual increases in production, which produced a glut in the US market and the decline of prices in the most important a global market.
Will suffer members of the «OPEC» countries with weak economies, or that do not have adequate financial reserves, which are Iraq, Iran, Libya, Venezuela, Algeria and Nigeria, because of the collapse in prices because they painted the previous fiscal policies on the basis of unrealistic the most important tip the continuing high prices and the application of non-productive economic policies, Not to mention the costs of internal wars in many of them. And it quickly and to paint the budgets of 2015 on a more rational and realistic basis. But this will not be easy due to the commitment of these countries the expenses of non-productive, and almost total dependence on oil revenues. It will have the major producing countries with adequate financial reserves to rationalize budgets next year, also in order to preserve these precautions.