Will oil producers’ game of chicken end?

Annie Baxter Dec 4, 2015
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Will oil producers’ game of chicken end?

Annie Baxter Dec 4, 2015
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There’s been a lot of speculation over the past few days about whether the Organization of the Petroleum Exporting Countries (OPEC) will seek to limit oil production when it meets Friday in Vienna.

The goal would be to reduce the glut of oil on the global market and keep prices from plunging further.

Oil producing countries seem to agree that output must drop.

“The difference is that everyone wants somebody else to cut,” said Jamie Webster, Senior Director of Oil Markets at IHS.

An agreement to limit output may require participation from non-OPEC members, like Russia. But Webster said he doubted Russia would be game for shutting down any of its production.

“When you shut down a field, there’s actually a risk that it can’t come back on,” he said.

Webster said he also doesn’t expect the most powerful player, Saudi Arabia, to turn down the spigot, either, even though other countries with smaller cash reserves are begging it to.

Webster said the Saudis don’t want to cede any market share by backing off of production.

“No one wants to go first” said Ed Hirs, an energy fellow at the University of Houston. “It’s a worldwide game of chicken in a 94 million barrel-a-day market.”

Hirs said he suspects OPEC will stand pat, which would keep up pressure on high cost players, like U.S. shale producers, to pump less.

 

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