The price of U.S Oil has increased by 40% since Christmas Eve thanks to the OPEC's production cuts. The article states that this increase has come from the strategy implemented by Saudi-Arabia-led OPEC. It claims that this increase is due to the oil cartel and allies, including Russia, agreeing to cut the production of oil due to a supply glut that was formed by the U.S becoming the world's largest producer of crude oil. This cut happened in December of 2018 when OPEC and Russia decided to put the production of oil by 1.2 million barrels a day. This would then cause prices to increase due to the lack of production. Crude oil, during Christmas Eve, costed around $42.53 a barrel, which is significantly low. Since the prices have risen, this has lead to an overall more efficient economy and shows that the cuts have been effective.
Should OPEC continue with these production cuts for now? And if so, how long should they continue? And if they shouldn't continue with the production cuts, what should OPEC do instead?
https://www.cnn.com/2019/03/20/investing/oil-gas-prices-opec/index.html
5 comments:
OPEC and Russia can continue to cut production, but this may lead to poor employment numbers. The US will be capable of producing oil in the future, so OPEC's influence over the market price has deteriorated. OPEC could look to relocate crude oil workers and resources to different industries.
OPEC's dominance of the oil market certainly has declined. With the large increase of US oil production, we have been able to move away from being reliant on other foreign powers for our energy needs.
Saudi Arabia, as the controller of OPEC, needs to manipulate the oil market as the higher the price per barrel goes the more valuable an oil company can be. Specifically Saudi Arabia's Aramco. Saudi Arabia wants to selloff parts of its interest in its massive oil conglomerate. It knows that it will probably be the largest IPO in history and as such wants to get as much cash as it can. If oil prices are high then Aramco can be sold for a higher premium than it would be if the price of oil is lower.
Very interesting article, although OPEC'S influence of the market is decreasing it is still crazy to think that one organization has this much power in controlling prices of a commodity. With the U.S. increase in production it will probably decrease the power OPEC has in the market a little but OPEC I believe will always have majority power in the market.
Given that the US has taken the top spot in crude oil production, I am interested to see how OPEC's power in the oil market shifts if it does at all. Despite the fact that their power is decreasing, the fact that they have such control in the oil market still allows them to do things like manipulating prices even with strong oil markets in places like the United States. As it has been mentioned in other comments, I believe that OPEC will always have significant market power even if they are losing some share of it right now.
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