Analysis & Opinions - Bloomberg Opinion

OPEC's Job Just Got a Lot Tougher

| May 25, 2017

The cartel's members mostly made good on promised production cuts. But will it hold off U.S. fracking?

In contrast to the fireworks at some recent OPEC meetings, this week’s gathering in Vienna looks comparatively dull.

Before it even began, members of the Organization of Petroleum Exporting Countries had made clear that they intended to continue the production cuts from late last year; on Thursday, they agreed to do so until at least next March. OPEC nations, along with the 11 non-members who joined them in these cuts, had little real choice. The extension was already priced into the market; had they decided otherwise, oil prices would have swooned.

The two charts here are revealing in many ways. First, they confirm what is widely understood: Saudi Arabia has borne a disproportionate share of the cuts, removing more oil from markets than it had committed to doing. Yet this is no repeat of the early 1980s, when Saudi Arabia reduced its production markedly and other producers continued their business as usual, reaping the benefits of Saudi cuts and expanding market share. This time, others have made significant contributions to the overall balance.

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For Academic Citation: O'Sullivan, Meghan.“OPEC's Job Just Got a Lot Tougher.” Bloomberg Opinion, May 25, 2017.