The OPEC cartel actually did what it was supposed to do

[Tom Kirkman + 8,860]

Cartels gonna cartel.

I've mentioned before, purpose of a cartel is to restrict supply in order to increase prices.

And in the last year, OPEC has done precisely that, helping the global oil industry recover.

While I am not particularly a fan of OPEC or cartels, I must admit they have done what they set out to do last year, which was to reduce the global oil glut (insert irate glare at overproducing U.S. Shale Oil producers) and help oil prices recover to manageable levels.

OPEC's Barkindo warns of underinvestment in global oil industry

The Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia last year began withholding 1.8 million barrels per day (bpd) of supplies to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than $30 a barrel.

Both Russia and the OPEC leader Saudi Arabia have spoken about the need for a gradual increase in oil production as the goal of removing excessive oil stockpiles has now been achieved and the market has broadly been balanced.

“The next critical phase before of us in the whole process is to sustain this accomplishment of market rebalancing and gradual recovery in investments and the return of confidence in our industry,” Barkindo said. “One of the greatest and most prescient challenges before us is ensuring that there will be adequate levels of investment in a predictable fashion.”

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Here's hoping that OPEC doesn't take it too far and artificially push prices up to triple digits.

Too high oil prices have negative consequences, as do too low oil prices.
 

[William Edwards + 708]

On 5/30/2018 at 9:28 PM, Tom Kirkman said:

Cartels gonna cartel.

I've mentioned before, purpose of a cartel is to restrict supply in order to increase prices.

And in the last year, OPEC has done precisely that, helping the global oil industry recover.

While I am not particularly a fan of OPEC or cartels, I must admit they have done what they set out to do last year, which was to reduce the global oil glut (insert irate glare at overproducing U.S. Shale Oil producers) and help oil prices recover to manageable levels.

OPEC's Barkindo warns of underinvestment in global oil industry

The Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia last year began withholding 1.8 million barrels per day (bpd) of supplies to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than $30 a barrel.

Both Russia and the OPEC leader Saudi Arabia have spoken about the need for a gradual increase in oil production as the goal of removing excessive oil stockpiles has now been achieved and the market has broadly been balanced.

“The next critical phase before of us in the whole process is to sustain this accomplishment of market rebalancing and gradual recovery in investments and the return of confidence in our industry,” Barkindo said. “One of the greatest and most prescient challenges before us is ensuring that there will be adequate levels of investment in a predictable fashion.”

=============================

Here's hoping that OPEC doesn't take it too far and artificially push prices up to triple digits.

Too high oil prices have negative consequences, as do too low oil prices.
 

May I raise a question regarding your statement "The Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia last year began withholding 1.8 million barrels per day (bpd) of supplies to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than $30 a barrel." I submit that there is an equally likely possibility. That is that OPEC continued to supply ALL of the oil that was requested of them, but the increased supplies coming from non-OPEC completely filled the increased demand. Therefore OPEC did not restrain production - they restrained price competition, which is an entirely different act. While it is true that the price would have suffered if they had been aggressive on price in order to displace the new production with their own capacity, the absence of a price drop is not proof that they restrained supplies. This brings us up to the present where the key question is "Is there enough room in the demand and supply growth balance going forward to allow OPEC to push more oil into the market without a price war. Let us address this question at the end of this year.