Figures this week confirmed that OPEC’s strategy to stunt US crude production, which started in November 2014, is now bearing fruit with US production now at November 2014 levels. Eleven months after OPEC ramped up output, US output peaked at 9.1 mbpd in June this year and has since fallen by around 500,000 bpd. OPEC meanwhile has seen an increase in demand ramp-up from 29.3 mbpd in 2014 to with demand forecast to reach at least 31.3 mbpd in 2016. However, this has come at a cost as OPEC crude prices are about 46% lower than 2014, equating to around $370 billion dollars in lost revenue.
The next OPEC policy-setting meeting is on Dec 4th. Historically, non-OPEC members (Russia especially) have in the past refused to work with OPEC and have their own agenda when it comes to oil policy. However, in light of the recent price slump and complaints from non-OPEC members regarding the effect this phase of low oil prices is having on budgets, economies, and future investment, OPEC decided to organise a special meeting to discuss.
Eight non-OPEC members were invited, but only five attended: Russia, Colombia, Brazil, Kazakhstan, and Mexico. The Venezuelan oil minister delivered a presentation aimed at swaying members to cut production in order to bolster prices, echoing sentiments from the Venezuelan president who believes a price band of $70 – $100 is the level the benchmark Brent Crude contract should be trading at. Venezuela’s foreign exchange reserves are at 12-year lows and its oil-reliant economy is really struggling in the current low price environment hence, it’s lobbying for production cuts.
Salient points of the special meeting:
The below chart shows the pronounced effect oil price movement has on the number of rigs drilling for oil in the US.
OPEC (Organization of the Petroleum Exporting Countries) was founded in September of 1960 in Baghdad, Iraq. Its purpose is to protect oil exporting countries against actions of the multinational oil companies. OPEC is made up of twelve member states. Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
These twelve states hold 81% of the world’s proven oil reserves. They produce 45% of the world’s crude oil at about 33,327,700 barrels per day.