Kemp: OPEC's Options (None of Them Good)

But sharing out the market is much easier when oil demand is growing rapidly and non-cartel supplies are flat or falling -- a situation that describes much of the last decade.

It is much harder when demand is stagnating and non-OPEC output is surging -- putting the organisation back into the difficult position in which it found itself 30 years ago.

To Cut, and If So, How Much

Ministers must decide whether to cut production, and if so by how much, and how to share out the reductions.

The first option is to do nothing, allowing lower prices to force a rebalancing between demand and supply: the best cure for low prices is low prices.

Prices might remain stuck at current levels, perhaps even head another $10 or $20 lower in the short term.

But eventually demand will pick up as moves towards energy efficiency take a back seat in consuming countries and incomes rise in emerging markets.

And supply growth will fall as shale producers cut back and new capital spending around the world is postponed or cancelled.


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WHAT DO YOU THINK?


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Stan Chiezey  |  November 21, 2014
Quite a difficult and interesting balancing act for OPEC this time around. Production cuts may not necessarily be the solution as non-OPEC exporting countries will surely be waiting on the sidelines to fill any supply gaps that may be created by such production cuts. Rather than rush into the usual production cuts and forced price increase, OPEC should continue to maintain current production levels and use potential increase in demand to stabilize and subsequently sboreup prices. This will definitely not be a "quick fix solution" but will be more of a long term benefit.


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