Members of the Organization of the Petroleum Exporting Companies agreed to limit production during their September meeting. However, the prices dropped once again after rumors surfaced that the organization, which controls 40 percent of the world’s oil production, made no final agreements to cut output or decrease the rising oil stockpiles. On Nov. 7, OPEC’s basket price of crude oil stood at $41.98. The prices have been steadily increasing since the September OPEC meeting, climbing to their peak of $49.06 on Oct. 19. This shows a drop of $7.08 per barrel.
Several news groups, including CNBC, reported that Saudi Arabia, the organization’s top oil producer, threatened to boost oil production by one to two million barrels per day in order to drive down the price of oil. This move is aimed at Iran, which refuses to cut down its rate of oil production.
If an agreement is not reached, Saudi Arabia’s OPEC representatives threatened that they would stop attending the meetings, which would spark more instability in the oil market.
However, Iran is unlikely to back down. The country has been trying to regain its hold of the oil market since the sanctions against the country were lifted. This raises the possibility that the two countries will clash once again in the near future and ruin the chances of an agreement.
Iraq’s representatives also requested to be exempted from OPEC’s production cap, putting the organization’s efforts to cut down production in doubt.
The decreasing oil prices have helped to destroyed the economies of several countries, including that of Russia and Venezuela. If the prices drop even further, countries whose revenue relies on oil could face major economic troubles.
When the price of oil began to fall, economists believed that lowering the rate of oil production could drive the prices back up. However, lowering supply was impossible as members of OPEC, particularly Saudi Arabia, refused to slow down production, as they generate most of their revenue throguh the oil industry.
“The markets are still under pressure of oversupply as reflected in excess stocks,” OPEC Secretary General Mohammed Barkindo said in the first meeting of the High-level Committee of the Algiers Accord. “The recovery process has taken far too long and we cannot risk delaying the adjustment any further.”
The High-level Committee, Barkindo explained later in his speech, was created to establish and implement new output levels for oil producing countries. It will also be responsible for creating more dialogue between the member countries.
If the committee is able to set lower output levels, Barkindo explained, the oil stockpiles will decrease and the price of oil per barrel will increase.
“Today’s meeting, therefore, comes at a critical time for the global oil markets as we, producers, jointly put efforts into taking action for the sake of the ‘sustainable market stability’ we all desire,” Barkindo added.
A recent Bloomberg article raises the point that bringing the prices of oil to a stable level would require an agreement that goes beyond OPEC members, including China, Russia and the United States.
The news organization cited a speech delivered by Ali al-Naimi, the former Saudi Arabian energy minister. In his speech, he praised non-OPEC countries for wanting to cooperate on cutting oil production, though he acknowledges that, historically, most oil-producing countries were unwilling to cut production rates.
While disagreement among OPEC members is the main contributor to the drop in oil prices, the rising stockpiles could also be at fault. Decreasing the oil stockpiles would help boost the price of oil, though it will not resolve the issue.
The next OPEC meeting will take place on Nov. 30, in Vienna, Austria. At this point, the organization’s main priority is to solidify an agreement that would lower production rates and raise the prices of oil. However, this will require cooperation from Saudi Arabia and Iran. If the two countries do not cooperate during the negotiations, prices may be in for more trouble.