OPEC production cuts: help or harm

OPEC continues to make headlines with their production cut plans possibly being extended past the original March 2018 deadline. However, the topic of whether these cuts will benefit or harm the long-standing oil capital of the world is absent from discussion. Back in January, the initial decision to cut supply was the driving force behind a rise in crude oil prices per barrel to near $60. But since then, this and other oil and gas commodity prices have been steadily falling.

Exceptions to this trend were seen multiple times this year. Natural disaster cut production from the Gulf of Mexico thrice over the course of hurricane season, causing short price spikes. OPEC’s recommitment to their production cut strategy back in May also bucked the falling price trend for a time. However, overall commodity prices have not rebounded from the serious decline they saw in years prior. Meaning that further production cuts may again affect the market in the short-term, but the long-term pricing changes that OPEC desires from their production cut strategy are likely never to happen.

In other words, without increasing prices to a point that will makeup for over a year of cutting production now, OPEC is losing out on large amounts of oil revenue and, what’s worse, market share. Competitors in the market including partner country Russia and our own United States are occupying the gaps in market share left by OPEC’s continued cuts, ostensibly reducing OPEC’s own market share when they return in full force from the production cut strategy.

Whether OPEC decides to extend production cuts through their current March 2018 deadline is still up in the air. But history from the past year of cuts is pointing towards the extension hurting themselves the most. Their fast-approaching decision will soon tell if the international oil conglomerate agrees with this assessment, which is becoming a growing consensus among market analysts.

Written by: Chris Stomberg

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