OPEC SHOULD TRIM EXPORTS AND LET MARKETS DO THE REST

The Organization of Petroleum Exporting Countries still has much to learn.

It just can't give up politics.

For 2 years, the exporters' group has deftly managed production at the margin of the oil market against vacillating demand. After the price collapse of late 1997 through early 1999, it seemed to have learned how important it is to base production adjustments on early signs of demand swings.

The market had become sophisticated enough to outrun OPEC's formerly ponderous decision-making and supply responses. Indeed, OPEC aggravated market swings in 1997 and early 1999 by acting too late.

After that, however, it acted more preemptively, trying to head off major market imbalances and consequent price lurches. It earned praise from most observers for its adroit management of supply.

Now, however, comes the hard part.

It's easier to succeed as the marginal supplier when demand is growing than it is when things are heading the other way.

That's what's happening now. This year's economic slowdown, aggravated by the terrorist attacks of Sept. 11, has all but snuffed growth in global consumption of oil products.

Already this year, OPEC has cut its group quota by 3.5 million b/d. And it acknowledges the need to do more.

In Vienna this week, the group said "all producers" needed to remove 2 million b/d from the market. It said its members would trim collective output by a further 1.5 million b/d.

Then it went a step too far. It made its action contingent on a "firm commitment" by nonmembers by a simultaneous cut of 500,000 b/d.

That's asking too much. The market doesn't work that way-and shouldn't.

If OPEC is correct that the market needs 2 million b/d less supply. If it is willing to cut by only 1.5 million b/d, the other 500,000 b/d will go away naturally.

Because there will be 500,000 b/d too much oil sloshing about (if OPEC's projections are right), prices will fall. And producers with the highest costs will shut in wells.

It happens every time. It'll happen this time.

Why the need for a "firm commitment?" That's a useless step toward politics and dangerous step away from market freedom. It's another reason for an already suspicious consuming world to believe that oil prices result from collusion rather than market dynamics.

Producers and consumers alike are better off when the oil market works with as much freedom as is practicable under the delivery system's physical realities. Indeed, the market works impressively most of the time, even with an exporters' group managing supply at the margin.

That situation is tolerable only as long as the exporters base their decisions on market conditions and not politics.

The sudden demand for greater collusion is not healthy-not for the market, not for consumers, not for the industry, and least of all for OPEC itself.

Related Articles

After Keystone nod, Congress should okay ANWR leasing

01/30/2015 Now that it has passed legislation supporting the Keystone XL pipeline, Congress should approve oil and gas leasing of the Arctic National Wildlife...

Data refute Lew’s claims about taxes paid by producers

01/23/2015

On the subject of taxation, administration officials count on the public to believe anything.

Market watchers’ adjustments offer hints of recovery

01/16/2015 Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil a...

Study probes link between US dollar’s value and oil price

01/09/2015

While the US dollar’s value against other currencies influences the price of oil, the relationship is complicated.

Condensate export status a problem with easy solution

01/02/2015 Some perplexing problems have simple solutions. A problem perplexing US producers and regulators is the status of condensate relative to the longst...

For the US economy, a falling oil price has drawbacks, too

12/19/2014

Cheer in the US about an economic lift from falling oil prices needs qualification.

Can ersatz meat ease climate heat on fossil energy?

12/12/2014

Human food from animals might represent a stronger lever for climate-change mitigation than was indicated by a study reported here last week.

Study: To cool climate, eat less meat, milk

12/05/2014

Meeting stated goals for Earth’s climate requires not only using pricey energy but also spurning animal protein.

OPEC was destined not to cut output in Vienna meeting

11/26/2014 The Organization of Petroleum Exporting Countries was destined not to cut production to defend the price of crude at its ministerial meeting Nov. 2...
White Papers

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected