OPEC Maintains Daily Oil Production Quotas, Despite Price Plunge

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Organization of Petroleum Exporting Countries (OPEC), which supplies almost 40% of the world's crude oil, has maintained its output quota of 30 million barrels per day, despite plunging prices and oversupply of crude. The oil ministers from OPEC member countries met at its headquarters in Vienna, Austria.

The member countries reaffirmed the aggregate production allocation, asserting that compliance has been acceptable. OPEC production has averaged 30.2 million barrels per day this year, which is relatively tight in comparison to excesses during 2009 through 2012.

In a televised press conference, OPEC Secretary General Abdalla Salem El-Badri refused to be pinned down on a target price, which he insists does not exist as a fixed number. When asked what OPEC would do in response calls to reduce production to 28.4 million barrels a day in the first half of 2015, he restated the commitment to produce 30 million barrels per day.

"We are going to produce 30 million. Why are people concerned about our production? Why you are concerned? If the price comes down, doesn't that help you to fill your car? Why are you concerned about this? Unless you are a trader, but if you are a journalist, that's good for you," El-Badri said.

OPEC likely took a long view to sustaining consumer demand--not only through increasing affordability and contributing to economic growth, but also reducing the attractiveness of substitutes. After the decision, the price of oil fell to $74.90 a barrel, which is the lowest level since August 2010. OPEC countries, such as Venezuela, Iraq and Iran, whose economies depend heavily on oil revenues, would have profited from reducing oil supplies.

Net oil importers, such as Turkey and South Africa, are set to benefit at the expense of producers, among which Venezuela and Russia stand to be the biggest losers, while some, like Saudi Arabia, have resources to withstand lower prices for longer.

According to Barclays Capital energy analyst Kevin Norrish: "Based on IMF [International Monetary Fund] elasticity calculations, a 25% drop in oil prices in the short term could help boost demand growth by 0.5%, which roughly equates to 460 kb/d [thousand barrels per day]."

The lack of OPEC action mostly likely will push Brent oil toward $70 per barrel, before supply cuts lift prices back to $80 to $90 per barrel. These lower oil prices are positive for global growth, adding 0.2 to 0.4 percentage points to global gross domestic product (GDP) in 2015.

"The supply-side adjustment from unconventional suppliers will be the crucial leg that will provide guidance on price floors," Norrish said. "Breakeven prices and credit market implications and the ability to borrow for producers will be key to monitor."

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