OPEC'S CHOICE: MARKET SHARE OR PRICE PROTECTION

The Organization of Petroleum Exporting Countries faces a difficult decision as 1994 approaches: whether to defend its market share or cut production in a bid to bolster oil prices. London's Centre for Global Energy Studies believes oil prices are now sustainable only in the $10-15/bbl range, which means OPEC's best policy is to stick to its quotas and maintain market presence. Unexpectedly large increases in non-OPEC oil production during the fourth quarter mean higher oil prices can

Dec. 27, 1993

2 min read

The Organization of Petroleum Exporting Countries faces a difficult decision as 1994 approaches: whether to defend its market share or cut production in a bid to bolster oil prices.

London's Centre for Global Energy Studies believes oil prices are now sustainable only in the $10-15/bbl range, which means OPEC's best policy is to stick to its quotas and maintain market presence.

Unexpectedly large increases in non-OPEC oil production during the fourth quarter mean higher oil prices can now be achieved only through drastic production cuts.

"Nor is the situation likely to improve next year since further increases in non-OPEC production will leave little room for additional output from OPEC countries," CGES said.

Rising non-OPEC production has forced OPEC into a corner.

Defending prices will lose OPEC market share by encouraging development of more non-OPEC production capacity. Defending market share will require OPEC to accept low prices and therefore low revenues.

"Hard as it will be for the producing countries," CGES said, "low oil prices are inevitable. Non-OPEC producers clearly do not regard current price levels as a problem since cost reductions mean that their pain threshold is much lower than it was in 1986.

"As a result, sustainable oil prices now lie in the $10-15/bbl range rather than $15-20/bbl. Now is the time for OPEC to make a virtue of necessity by making known its interest in preserving its market share."