News Column

For Opec, the price of oil is just right

June 30, 2014


Dramatic changes in oil production around the globe are balancing each other out instead of wreaking havoc. This has helped world oil prices stay high enough to provide Opec countries with robust income, but not so high that they scare customers away from buying more of their precious product.Brent crude, the most important international oil benchmark, has hovered in the range of $110 per barrel over much of the last 4 years, with remarkably low volatility for oil markets. That has also led to stable gasoline prices for US drivers, who have been paying in the neighborhood of $3.50 per gallon over the period."It's comfortable for everyone," says Judith Dwarkin, chief energy economist at ITG Investment Research. "The global economy has recovered, oil demand is growing at trend, and prices are high and stable."Or, as Secretary General Abdullah Al-Badri said in Vienna after Opec decided to maintain its current output of 30 million barrels a day (mbpd): "Everybody's happy."But this happy, stable market masks some difficult realities that Opec has been fortunate to skirt. There have been production booms in some areas of the world that could have sent prices plummeting. And there have been shortages in other areas, including in Opec countries, that could have sent prices rocketing higher.Opec is fortunate, experts say, because the organization would be hard-pressed to adjust if this precarious balance were upended. Opec members have a very limited ability to either raise or lower production to steady the market, they say.Instead, "Opec hasn't had to make difficult decisions," says Michael Levi, director of the programme on Energy Security at the Council on Foreign Relations.Production from non-Opec countries, driven especially by a boom in US shale oil, has risen by 4 mbpd over the last four years. That's more than the entire output of Canada, the world's 5th largest producer, and more than enough to push oil prices lower.At the same time, Iraqi output has risen 22 per cent since 2011 to 3.3 mbpd, further adding to supplies. That too could have pushed oil prices lower.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Oil & Gas News

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters