Oil War

Russia against OPEC cut in production by 1 million barrels per day to force up price of crude. Price war imminent.

The OPEC cartel (Organisation of Petroleum Exporting Countries) is preparing to cut production of crude by 1 million b/d so as to force up the price of a barrel of oil. All members of the cartel are in favour of the idea, while some profess more drastic measures.

Russia, Mexico and Norway, producers which are not OPEC members, are against the measure. It will be remembered that Russia announced recently to the international community that it is prepared to make up any shortfall in OPEC production so as to stabilise the market price.

The consequence of this could be a price war between OPEC on one hand and non-OPEC producers on the other. Low oil prices, such as the ten USD/barrel the commodity reached at its lowest point, make the production of oil uneconomical for producers with higher exploitation costs, such as Siberia and the North Sea.

Recent negotiations between OPEC and Russia/Norway have not produced results. The OPEC cartel favoured a 2 million b/d reduction in production, with the cartel cutting by 1.5 million and the non-OPEC members supporting half a million. Russia, however, prefers stability in the market and would allow only a symbolic reduction.

Due to the current economic setting, the demand for oil has fallen, meaning that at current production rates, the 20 USD/barrel price tag could fall. This will be the fourth time that OPEC has cut production this year to keep the price above 20 USD/barrel.


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Author`s name Editorial Team