Wednesday, 2 December 2015
Why OPEC's plan to balance oil markets backfired
OPEC's plan to shake up the world oil market may have backfired for now. Just a year ago, the Organization of the Petroleum Exporting Countries decided to let market forces determine the price of oil, rather than its own production quotas.
Conventional thinking then was that the US oil patch would be littered with bankruptcies, and production would collapse. As for Russia, the world's largest energy producer would be forced to cut back production by hundreds of thousands of barrels this year due to both the weakness in oil prices and the impact of Western financial sanctions.
But the results have turned out very different. Instead of falling off, production increased from where it was last year, and the world is still swimming in oil. The three biggest producers — Russia, the United States and Saudi Arabia — have in fact been adding more than 1 million barrels a day more to the market in the past year.