OPEC’s Strategy 2019: Will Oil Princes Survive?
Over the past few months, OPEC has been facing unprecedented challenges connected with certain changes on the global energy market. The trust’s 2019 strategy is aimed at production or price cuts, which are both evidently dead-end.
The influence of international oil princes is becoming less pronounced. A number of large investment banks have already downgraded their price forecasts for the current year. The Goldman Sachs Group, for instance, has lowered the costs from $70 to $62.50 per barrel under the pretext of the production scale-up.
What’s Wrong with OPEC’s Strategy 2019
This year, the Organization of the Petroleum Exporting Countries is going to lower the level of procurement for the purpose of supporting the prices. The abovementioned strategy has been fuelled by the following factors:
- The performance of the American sector has become much greater.
- Iraq has also increased its oil production.
- The anticipated productivity shock in Mexico has also given a boost to the challenging situation.
It should be reminded that the organization includes fourteen members, such as Gabon, Libya, Algeria, and Venezuela. The leader of the trust is Saudi Arabia. The total execution of base crude, performed by the members of OPEC, is 43.53% of the world’s supply. Moreover, the institution controls almost 81.9% of the international reserves.
Where This Strategy Leads
Experts note, that if the oil producers cartel scales the production volume, a considerable part of the market can move to the USA. The country will become much more influential from the viewpoint of economic impact – and more unpredictable in general. Even today, America’s level of fuel extraction grows at a far quicker rate than global demand, which can easily result in a real “supply tsunami”.
At the same time, some specialists say that price direction is contingent upon the whole range of macro-economic factors. The most influential of them is, by all means, the trade controversy between China and US. When the dispute is settled, the global market will revive and the prices will increase. At least, for a short while.
Note that this year the overall oil demand will grow in the estimation of specialists from 1.3 to 1.4 millions of barrels per day. In December 2019, energy supply index dropped by 950,000 barrels per day, which was the result of OPEC’s lowered productivity on the threshold of the prescheduled supply cuts.