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Friday, September 30, 2016

Was OPEC Too Late in Changing Policy on Production Cuts?

From Forbes contributor Robert Rapier:
In an article I wrote earlier this year — OPEC’s Trillion-Dollar Miscalculation — I speculated that if OPEC could go back in time to November 2014 we would likely have not seen oil prices crash as they did. Because at that time the cartel embarked upon a course of action that arguably had far greater financial repercussions than they expected. 
To review, OPEC, which is responsible for over 40% of the world’s oil production, has long attempted to function as the world’s swing producer for crude oil. If the world needed more oil production, OPEC would bring more barrels online. If demand declined, some production could be idled. The group believed that a stable price was the key to matching global supply and demand. 
Agreeing to production quotas was always a messy process, with competing factions within OPEC frequently having clashing objectives. But Saudi Arabia is by far OPEC’s largest producer, and the group historically falls in line with its desires. And that desire in November 2014 was to abandon the objective of attempting to balance the market. Following that meeting OPEC announced that it would defend market share that was being lost, in particular to rising shale oil production.
Read the whole article by clicking here.

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