OPEC's Decision to Continue Production Despite 'Concerns About $20 Oil'

OPEC, the Organization of the Petroleum Exporting Countries, is determined to maintain its production levels despite financial pressures on its most influential member, Saudi Arabia. This raises alarm for weaker countries worried about oil prices dropping to $20. Reuters reported on Wednesday, December 4, that any change in this policy may only occur if major non-member producers, especially Russia, join the production cut program. However, the likelihood of Russia assisting in reducing oil prices is weak. OPEC's historic decision in November 2014 to increase production to maintain market share against competitors was effective, raising oil prices to around $65 per barrel. Six months later, prices fell to $45, while mid-last year, oil was priced at $115. Some members are discussing a return to $20 oil, which occurred around the year 2000, linking this to the lifting of sanctions on Iran's economy later this year. Venezuelan Oil Minister Eulogio Del Pino stated, 'Iran has announced it intends to increase its oil production as soon as sanctions are lifted, and we must act. We (OPEC) cannot allow a price war to occur. We must stabilize the market.' In response to the question of how far oil prices would fall in 2016 if OPEC does not change its policy, he said, 'around $20.' Most analysts doubt that sanctions against Iran will be lifted before next spring, but sooner or later, the country will increase its production. Currently, global oil production far exceeds market demand. Russian oil production has reached its highest level, and global reserves are increasing. Even Saudi Arabia's financial resources, which led this policy shift in OPEC, are under pressure. The credit rating agency Standard & Poor's has predicted that Saudi Arabia's budget deficit will reach 16% of its GDP in 2015, compared to 1.5% in 2014. A production cut would actually signify a shift in policy that many competitors would interpret as a failure in strategy. Continuing to increase production while hoping for long-term profits is the option for Saudi Arabia and its allies, namely Qatar, the UAE, and Kuwait. Iran and Algeria have proposed that OPEC should control prices and supply by imposing production quotas on members. In 2012, OPEC lifted quotas and set a production ceiling of 30 million barrels per day. This year's production has consistently exceeded this amount due to record production from Saudi Arabia and Iraq. According to OPEC statistics, production last month was 31.38 million barrels per day. Member ministers may consider raising the production ceiling to 31 million barrels per day to accommodate Indonesia's rejoining, which currently produces about 900,000 barrels per day after seven years. In this context, OPEC's oil demand will have a 'downward trend' over the next five years, Iran will need 'years' to revive its oil production, and Iraq is selling its oil for '30 dollars.'