Will OPEC change its ways as oil continues to tumble?

11-Sep-2015 The past five years have completely changed oil market flows. With US production increasing and oil imports rapidly declining, many oil exporters such as Nigeria, Libya, Algeria, and Angola were completely locked out of the American market. Others, like Saudi Arabia, are fighting hard to retain their global market share by continuing to pump vast quantities of oil.

How successful has this strategy been since it was introduced in October 2014? In terms of market share, the cartel succeeded in retaining traditional markets, but at a heavy price for its revenues.

According to J.P. Morgan, Saudi Arabia alone loses around $90 billion a year with oil prices staying at $60 per barrel, and with Goldman Sachs predicting the oil prices to stick at $50 per barrel by 2020, it will be hard for Riyadh to maintain its influence and cohesion within the Organization.

Another goal – to suffocate the US shale industry with low prices – brought mixed results, and in the long term it will probably fail. The US producers were forced to cut capital spending and significantly lower their breakeven prices.

Nonetheless, US producers are still succeeding in keeping their heads above the water, even with the prices as low as $40 per barrel of the WTI traded oil. In addition, the sudden drop in prices helped the industry to consolidate, both in terms of productivity and cost efficiency, and although some of the production will inevitably become unsustainable, the core areas can continue to pump oil at a profit with prices as low as $30 per barrel. (by Ante Batovic, Global Risk Insights)