OPEC In Disarray in 2015

Subtitle: A Big Move In The Grand Game

Organization of Oil Exporting Countries, OPEC, met this week and essentially left member states' production levels to their own discretion.  Many articles in the media covered this.  

This is as I predicted in 2011, almost 5 years ago in my speech to Tulane Law School at their Energy Conference  (see link).   Competition from shale oil producers, and political instability in the Middle East have each contributed to the disarray in OPEC.   In my speech, I predicted oil price would drop to $20 or even $10 per barrel. 

The fallout from this will be good in some sectors, and grim in others.   The good news is for auto makers, and consumers who purchase gasoline and diesel, also industrial diesel customers, and airlines that purchase jet fuel.   Gasoline at under $1 per gallon will be a boon to the consumer.  

However, those industries that depend on oil for success will suffer.  Texas, for example, had a regional recession when a significant price decline occurred almost 30 years ago in the late 1980s.   Real estate prices dropped, many businesses closed, and people moved away from the state seeking better fortune elsewhere.   

The key question is who can sustain their output with low oil prices, will it be US shale oil producers, OPEC members, or non-OPEC producers such as Russia?   In previous meetings of OPEC, production was held constant on the belief that China would continue to grow economically and purchase crude oil.  However, China's growth has slowed and not continued on its rapid double-digit growth rate.  The anticipated demand for the oil is not there.  

This has to be frustrating for the Obama administration, who recited early in their administration that the price of gasoline must increase to approximately $9 or $10 per gallon.   Instead, declining demand due to cars that achieve better fuel economy, and world events have sent prices downward.  

Roger E. Sowell, Esq.
Marina del Rey, California
copyright (c) 2015 by Roger Sowell, all rights reserved