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Despite the collapse of oil prices, OPEC remains strong and is gaining more market shares and higher volumes than ever. This is a direct effect of OPEC’s famous decision issued on November 2014 to let its members freely produce as much as each can in order to confront the increased production of shale oil and other more expensive non-traditional oils.
This decision had forced the US oil production to reduce from its peak of 9.6 million barrels in 2014 by almost 10. It stopped the growth of the shale oil industry, which was worth more than 10.5 million during the years between 2010 and 2015 when prices averaged around $75 per barrel giving the shale oil manufacturers some positive margins of profits.
The higher oil prices had helped other producers to grow and expand at the expense of the OPEC oils. Therefore, the decision was taken for the oil organization to intervene to save its interests and protect its market share, irrespective of how low the barrels got.
Now OPEC is producing 33.6 million barrels with net increase or gain of over 2.4 million barrels this year while non-OPEC oil producers, which was estimated to produce 59 million by 2017, is now short by 2.4 million, which has been captured by OPEC.
Of course, Saudi Arabia had to let go of its swing producer role to safeguard the interests of other OPEC members and to maintain its market share. It has taken place now but with huge financial losses; nevertheless, it is working. The same decision is leading to fewer investments in expensive oils in terms of shale oils, deep water drilling, sand oils of Canada and in the Arctic, which resulted in costs of nearly $1 trillion and caused some concerns in the Western world such that they, in the coming years, will have to depend on the oils of the Middle East or at least one source from the Arabian Gulf region.
Of course, the question remains whether such a high cost was worth to produce oil at free production level and to create a supersaturated situation. Perhaps, they did not expect the oil prices to fall so low. But again, did anyone consider the speed at which Iraq and Iran could recover their oil productions to reach 5 million and 3.6 million respectively?
The oil prices went through hell since 2014. However, it is slowly recovering though not at the required pace and with the inability to reach its past level of over $100 per barrel.
What managed to remain strong in one piece through all this is OPEC. Its unity will be stronger if it succeeds in reviving back again during its coming meeting at the end of next month on the occasion of its second anniversary.
By Kamel Al-Harami – Independent Oil Analyst