Opec Agrees Output Control

The price of crude oil collapsed from $139, in June 2008, (before the worst of the Global Financial Crisis really hit) recovering to $125.9 (June 2011) before the current crash in oil prices took it down to $36.67 this February. Currently, the price stands at $48.2 (prices are for Brent crude). The reason from the collapse between the summer of 2011 and now have largely to do with sluggish economic output (notably, it is claimed, in China); the coming on stream of US oil from shale gas; and a glut of oil on international markets married to an inability of Opec to rein in production.

It is the case that production of oil from shale deposits is much more expensive that traditional production and currently, such deposits are either marginally profitable or too expensive to exploit economically.

Opec has announced a preliminary deal to reduce production, thereby (they hope) putting upwards pressure on the oil price. They hope to finalise the agreement in November when the northern hemisphere winter would give a seasonal impulse to prices due to higher demand from power producers. It is likely that the reduction would equate to 700000 fewer barrels being produced per day (global output is of the order of 97 million barrels per day), so somewhat less than 1% of global output. Reduction across the bloc will not be proportional with Iran being permitted to increase output, for instance. The Opec cartel is responsible for approximately a third of global output at about 33 million barrels per day.

Some commentators on petroleum futures have expressed scepticism over the deal since the production cut (if it happens) will not occur before November. The announcement saw a $3 hike in the price of Brent crude from $46 to $49, but it has already lost some ground since.

Dr. Mike Campbell
Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.