Not all is Happy in OPEC as Oil Prices Tumble

The price of oil is now firmly below the key psychological level of $80 per barrel. Sellers are eyeing $70 and $50 per barrel might not be out of the question. This has rattled the Organization of Petroleum Exporting Companies, better known as OPEC, and some members are now yelling for concrete action at the next meeting.

This past weekend we heard from OPEC member countries like Kuwait and Iran expressing concerns that the organization was not doing enough to protect the economies of member countries. Kuwait held an “extraordinary” emergency meeting of its Supreme Petroleum Council to discuss measures to stem the price of oil. This includes what measures, with other OPEC countries, needed to be taken immediately to shore up the price of crude.

This was a bit shocking as they had issued earlier statements that they were confident prices would recover and that panic was not called for. Just last week, the Kuwaiti oil minister said reduction in output was not called for when OPEC meets on November 27.

We are now seeing similar production concerns being voiced by Iran and other member countries. Iran is now tapping its cash reserves to mitigate the cost of the oil slump. Thanks to certain countries, like Saudi Arabia, who have increased production, it will be hard for them to reduce. They are adamant this will harm market stability.

At this point we would need to see OPEC reduce production by 1 to 1.5 million barrels per day to curb the short term fall in crude oil prices. They have not made their mind up to do this yet and this move will depend on several factors from Iran’s nuclear talks, the price of oil and the agreement between all member countries. A recent statement from Abdulla El-Badri, the Secretary General of OPEC, said he did not see oversupply of more than 600,000 to 700,000 of barrels per day.

Other countries like Venezuela, Libya and Ecuador feel that a cut in production is needed. The divide is wide whether or not to cut production and at this stage, do not expect them to reach a consensus. Especially when it comes to the allocation of cuts to each member’s share of market allocation. There is stormy weather ahead in OPEC and for the price of oil.