The role of opec in limiting the supply of oil all over the world

What drives crude oil prices: This organization seeks to actively manage oil production in its member countries by setting production targets. Historically, crude oil prices have seen increases in times when OPEC production targets are reduced.

The role of opec in limiting the supply of oil all over the world

Instead of production targets for individual countries, a group production ceiling of 30 million barrels a day was set. Thus, the agreement says that if Iraq increases its production, other OPEC countries will reduce their production to keep total production to 30 million barrels a day.

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All of this comes shortly after Saudi Arabia announced that it has halted plans to increase capacity to 15 million barrels a day by I wrote about this in a recent post. Saudi Arabia claims to have 12 million barrels a day in capacity now, but there is little evidence that it can actually produce this amount of oil.

Saudi Arabia recently boasted that it would increase oil production above 10 million barrels a day, to help offset the drop in Libyan oil production, but amounts reported by the OPEC Oil Market Report and the EIA report of monthly oil production are still under this amount.

The highest Saudi oil production reported by the EIA is 9. There would seem to be several reasons for applying an overall cap to OPEC production: So holding production down is in their best interests.

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An overall cap provides as direct a way as possible of keeping overall production down. It is not clear that most OPEC members have any spare capacity. This approach is at least theoretically easier to administer. One or two or three countries can make a change in production, if desired, to bring total oil production down to the desired level, if others raise their production.

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A country with very high stated reserves might be especially embarrassed by an unexplained decline in production, since this might also suggest that the stated reserves were inaccurate.

Why the Market Discounts the New Cap I am aware that the price of oil dropped after the announcement of the new 30 million barrel a day cap. The view underlying this decline is that the new cap is similar to the individual country caps, and likely to be exceeded if circumstances are right.

Furthermore, the 30 million barrel a day cap is similar to what OPEC has recently been producing, so there is no expectation of a cut in production at this time. It seems to me, though, that OPEC is gradually changing from an association whose primary purpose is to hold down production, to an association of mostly aging oil countries who need to cover up the fact that their oil production may not be able to keep up much longer.

The new methodology works much better, if part of the purpose is to cover up the reason for declining production of a few countries. Figure 2 is a graph I showed in a recent post. Middle East and North Africa oil production as percentage of world total, plus oil price in dollars.

Amounts from BP Statistical Report. Oil price comparable to Brent. Figure 2 shows that this group has not raised production relative to world production by very much, even when oil prices were high, suggesting that they have little capacity to do so.

Conclusion It will take a while to see how the new cap works out in practice. If my interpretation is right, OPEC is suggesting that they will decide how much, if any, increase in production will be allowed through to the rest of the world—that is, assuming that the increase in OPEC production is really there in the first place, and not offset by other OPEC declines.

My expectation is that oil price will really depend on how well the world economy is doing. The world economy is threatening to slip into recession now.

If it does, prices may go down. If it does not, and OPEC indeed keeps its production capped at 30 million barrels a day, we should expect higher oil prices ahead. In any new agreement, the real question is how the agreement is administered in practice.

I have suggested one way the new agreement may be used.

OPEC : Oil market stability: the role of OPEC

It will be interesting to see what actually happens.oil supplies from vast accumulations of shale oil resources from across the world.

If this were to occur, the result would be millions of barrels of costly new oil sup- plies gradually ooding conventional oil markets and marginalizing OPEC s near-. OPEC will continue to play a key role in oil supply and prices in the global oil market through , despite the relentless oil production in the Permian and expectations for production increases.

Over-supply of oil will drive the price of crude towards the downward slope in the world market. And if oil prices fall below the OPEC set minimum price, the oil cartel will cut down production, as seen earlier. Current Oil Market Dynamics and the Role of OPEC: Reflections on Robert Mabro’sWork non-OPEC supply has been all about North America and particularly the US Source: EIA, Energy Aspects Underground Versus Over-Ground Storage • Oil not produced today would be sold at a later time (stored underground).

The role of opec in limiting the supply of oil all over the world

WASHINGTON (AP) — President Donald Trump is declaring that oil prices are too high and blaming a coalition of countries that control a significant portion of the world's supply of crude petroleum.

OPEC’s activities are focused on oil, a commodity that has contributed more than any other form of energy to economic development around the world, over the past century and a half.

Analysts agree that hydrocarbons will remain the most important source of energy for decades to come.

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