The OPEC has been having a very good time since 1999 because the oil price had a positive trend and reached its maximum level of US$ 145 the barrel in july 2008. Their macroeconomic indicators show this fact. For example, in the period 1999-2008 the OPEC gross domestic product has been growing 5% in average, its current account has been adding up 120% of its GDP, and its per-capita GDP has been increasing three times. Now the price is around US$ 50 the barrel since it plummeted from its highest level. The OPEC is not ready for this event because many countries have been increasing their expenditures with the expectative that the price will remain high or get the US$ 200 the barrel. In this way, they are facing a future big reduction in their revenues and perhaps the future of the cartel continuity.
In my opinion the real problem of the OPEC countries is an unexpected deep oil price fall because of a demand drop. This fact nobody forecasted makes these countries to vary their strategies. For example, they must cut their oil production, reduce their outlays, increase their investment to reduce production costs, change the cartel goals and wait until a rebound of the price. Although the present-day price is more or less the third part of its peak, this price is higher than the historic price of US$ 20 the barrel, so they still have a gap to benefit and to make the necessary improvements to not be affected by the low price.
In my opinion the real problem of the OPEC countries is an unexpected deep oil price fall because of a demand drop. This fact nobody forecasted makes these countries to vary their strategies. For example, they must cut their oil production, reduce their outlays, increase their investment to reduce production costs, change the cartel goals and wait until a rebound of the price. Although the present-day price is more or less the third part of its peak, this price is higher than the historic price of US$ 20 the barrel, so they still have a gap to benefit and to make the necessary improvements to not be affected by the low price.
1 comment:
First of all, I'd like to congratulate your initiave in writing daily this interesting topics (daily at the beginning, jejeje).
Prices wouldn't return to a US$ 20 level because history has shown that this non renewable good could nearly reach US$150, so old psychological thresholds were crossed over. I beleive that OPEC is not willing to return to those low prices, instead they should reassing its budget to fit their future revenues in a really depressed context.
In respect to the OPEC unity, I think that although major oil consumers'demand shifts, this organization would manage to keep together because they have realized that benefit maximization is way much bigger as an OPEC member than being an isolated producer.
Really nice effort!
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