OPEC will keep pumping it out

Andy Uhler Dec 4, 2015
HTML EMBED:
COPY

OPEC will keep pumping it out

Andy Uhler Dec 4, 2015
HTML EMBED:
COPY

Despite consistently falling oil prices, Organization of the Petroleum Exporting Countries (OPEC) decided not to cut the amount of oil it churns out. In fact, it upped the number by 1.5 million barrels a day. Indonesia, which rejoined OPEC today after a seven-year absence, might be wondering what it’s gotten itself into. Worse still, that country’s presence adds another 850,000 barrels of OPEC oil to the market, daily. Once Iran starts pumping out the black stuff again, production numbers are only going to get bigger. The key question: who’s going to cut production first? Nobody’s volunteering.

Dominic Haywood, oil analyst at Energy Aspects, said eyes at the meeting were on Saudi Arabia.

“They’ve made it very clear that they don’t think it’s up to them,” he said. “And, also, they don’t necessarily think it’s up to OPEC to cut production.”

The Saudis’ plan is to maximize market share and to drive high-cost producers like the ones in North Dakota Texas out of business. Guy Caruso, energy adviser at the Center for Strategic and International Studies, said the plan seems to be working.

“It’s working but much slower than anybody, including the Saudis thought,” he said.

With $700 billion in cash reserves, Saudi Arabia can afford to wait. Jason Bordoff, director of the Columbia University’s Center on Global Energy Policy and former energy adviser to President Obama, said some OPEC members like Venezuela and Ecuador, can’t.

“You know it’s kind of a paradox but when countries who are dependent on petroleum revenues see a sharp decline in the global price, they have as much pressure as possible to boost output in any way they can,” he said. “Because they need the money.”

Meanwhile, oil inventory keeps rising. Bordoff said concerns about the oil glut make sense, but production is only part of the equation.

“The big question is how quickly demand keeps growing,” he said. “We saw very strong demand growth this year in response to the low price, almost two million barrels a day of growth, that’s going to have a big impact on how quickly we start to push the price back up.”

A lot depends on China, the world’s second biggest economy. If growth there keeps stalling, demand might do the same.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.