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OPEC's Solution To Oil Glut: More Oil!

OPEC's Solution To Oil Glut: More Oil!
  • OPEC will reportedly be sticking to its plan of flooding global markets with oil.
  • Reports from OPEC's Friday meeting indicate that there has been no agreement between Saudi Arabia and other producers to balance the global market.
  • OPEC has reportedly agreed to raise its production ceiling to 31.5 bpd.

WTI crude oil prices plummeted below $40 per barrel on Friday as OPEC has agreed to stick to its policy of flooding the global market with oil in an attempt to maintain and re-gain market share. WTI was down 3.0 percent in early trading following the news.

Sticking To Their Guns

Early reports out of OPEC's Friday meeting indicate that leader Saudi Arabia seems to be holding fast to its plan of business as usual in the hopes that higher-cost producers around the world, including many U.S. shale producers, will eventually succumb to the low-price environment, leaving OPEC members with a larger share of the market.

The decision comes despite protests from the organizations poorer countries, whose economies rely heavily on oil.

Related Link: Maybe It's Time To Buy The Tumbling Oil ETF

The Blame Game

Saudi Arabia is one of the lowest-cost producers in the world and seems to hold all the cards in the oil game for now. The Saudis have repeatedly indicated a willingness to cooperate in balancing the oil market, but only if they see concessions from other major producers as well.

"We have said on more than one occasion, we are willing to cooperate with anyone who can balance the market," said Saudi Arabian oil minister Ali al-Naimi.

OPEC is likely referring specifically to Iraq, Iran and non-OPEC member Russia, which has been a major contributor to the glut.

A Step In The Wrong Direction

The last thing that struggling U.S. shale producers wanted to see from the meeting was OPEC lifting its output ceiling from 30 million bpd to 31.5 million bpd, but unfortunately that is exactly what they got.

Shares of the United States Oil Fund LP (ETF) (NYSE: USO) were down 2.3 percent in early Friday trading and are now down 51 percent in the past year.

Disclosure: the author holds no position in the stocks mentioned.

Posted-In: News Specialty ETFs Commodities Events Global Top Stories Markets ETFs Best of Benzinga


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