Business Recorder (BR) Research

“…the potential for oil prices to fall to such levels, which we estimate near $20 per barrel, is becoming greater as storage continues to fill”, Goldman Sachs has suggested. This news has been picked up more in contrast to IEAs recent OPEC-strengthening-announcement where it broke the news that the expensive oil producers were exiting the global oil industry, which would reduce the oil supply and support prices.

Amid scorching budget deficits and negative revenues, OPEC has been perfectly guarding its role of the world’s largest cartel; it had seemingly chosen to protect market share over oil prices heading south and has not been wilting to the global industry pressures of cutting crude oil production.

But now cracks have started appearing in OPECs resolve when it recently hinted on playing the production card by initiating talks with non-OPEC members. How progressive and productive it will be is yet to be seen. However, OPEC is certainly in a tight spot; low crude oil price environment has created internal tussle where the larger players like Saudi Arabia have interests in safeguarding the cartels market share, while the smaller members are suggesting a cut in production to raise price levels due to falling revenues.

A sign of exasperation for Saudi Arabia, the leader of the pack, is its extended hand for help from its main non-OPEC rivals like United States and Russia; US is the first and Russia is the second largest oil producer outside the OPEC world. OPEC might be trying take some pressure off the oil prices and from the looks of it, the focus seems to be more on Russia with reports that the Kingdom is ready to offer access to Asian markets in exchange of a cut in volumes.

However, this attempt by the cartel might also not materialise. There are sound reasons why this is unlikely to happen; all past attempts at cooperation between Russia and OPEC have proved unsatisfactory, and though Russia can wish for the crude oil to rise again as energy contributes to over 60 percent of the country’s exports, it also competes for the title of the largest crude oil producer. Moreover, it can survive better at lower oil prices than the OPEC members due to improved budget deficit position.

First published: September 15, 2015.