Since their meeting on March 15, OPEC has been receiving a lot of watchful attention from the EIA and other oil market analysts. These forecasters are monitoring the organization in an effort to learn how OPEC is going to adapt to a lower global demand for oil as well as how they are going to adjust to weaker oil prices brought on by the international economic recession.
The member countries of OPEC have gathered 4 times over the past 6 months, all in an effort to stop declining oil prices and to slash their increasing oil inventories. The organization’s worries are clear as they try to come up with a solution: the EIA and other analysts have predicted that the global demand for oil will be down 1 million barrels per day (bpd) from 2008. The price of crude has also plummeted almost $100 per barrel since its peak prices during the summer of 2008. All of these factors have resulted in a large loss of revenue for the world’s largest oil-producing nations.
The possible action of further cutting oil production has been the topic of discussion during OPEC’s most recent meeting. At its last meeting, the organization was faced with a clear choice — they could slash production again and increase oil prices, which could delay an upturn in global oil demand and stall long-term price increases; or they could keep production at current levels. After thinking through their options, OPEC decided to leave its production levels alone.
A large part of OPEC’s reason for not cutting production was probably because they already did so late last year. That decision came in December 2008 when OPEC announced that it was going to reduce its September 2008 levels by 4.2 million barrels, dropping levels to 24.85 million bpd (for more information, please refer to the original HEAT Zone blog posting).
But it can be difficult to know which nation-members of OPEC are following the organization’s decisions, as each country has their own national interests to worry about along with the OPEC’s collective concerns. The matter is further complicated because the organization does not release the stats for its nations’ individual targets. The EIA, however, has estimated that OPEC’s crude oil production in February fell from nearly 3 million bpd since September 2008; that makes up almost 70 percent of their 4.2 million bpd production reduction target. When the stats are broken down further the producers of the Persian Gulf (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Iran) account for 80 percent of the cutbacks since they first began late last year. Saudi Arabia alone took the largest hit by cutting 1.3 million bpd of production.
As OPEC tries to keep its footing in the worldwide economic downturn, the Associated Press reported on Monday that Qatar’s oil minister said that he was “OK” if crude oil found a floor price of $50 a barrel. He further said that he’s personally “trying to be pragmatic,” all in an attempt to find stability in financially unstable times. The report went on to say that many other OPEC members — with Saudi Arabia at the front of the line — hope to see a future floor price of $75 a barrel, which would allow “producers to secure the investment needed to sustain current production capacity.”
As time moves forward and the future of the world’s economy becomes more foreseeable, so will the decisions of OPEC concerning oil prices and production output. And guaranteed, all eyes will be on them as events unfold.
This B2B blog post originally appeared on Heat USA’s Heat Zone blog.
