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OPEC defend decision to not cut output

Precise take a look at the latest with OPEC and their decision to not cut output in light of the recent drop in oil price.

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There are reports that the Swiss government is considering bringing in giant boxes of soap flakes to scatter on the ground to ensure the TV footage from the World Economic Forum looks all nice and snowy in case temperatures continue to rise over the ongoing debate about OPEC’s refusal to cut oil production, thus sending the world into chaos.

The latest development saw non-OPEC member Oman (the biggest Middle Eastern oil producer that’s not an OPEC member) joining Iran and Venezuela and voicing its first direct, public criticism of the Organization of the Petroleum Exporting Countries for maintaining current output and focusing on market share rather than price per barrel. As a result since July 2014 prices of benchmark Brent crude oil have collapsed – going from over $110 a barrel to below $50 this month. Granted OPEC can’t be blamed for all the oil supply in the world market – US shale drillers were having a grand old time upping production in the pursuit of enabling the country to becoming energy self sufficient by 2020.

However with production costs spiraling and prices collapsing, profits for many of the smaller firms are starting to become hard to find and budgets, future E&P plans and jobs are being cut.

There are reports of full scale scaremongering at Davos this week, where global leaders are meeting at the World Economic Forum. One quote from Reuters has Claudio Descalzi, the head of Italian energy company Eni Spa, warning that prices could shoot to $200 a barrel – claiming that lack of investment now could lead to a shortage in the next several years, “What we need is stability… OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way.”

Stability – at least in a communicative sense – was not in evidence from the Saudi team as Aramco sent out a somewhat confused message to delegates. First came this post, “Aramco may slow down some projects to keep finances robust” – woohoo thought the non-OPECians. But not for long. Next came, “Saudi Aramco committed as ever to long-term oil strategy: CEO”. The man himself Khalid al-Falih said while it might take some time, he was confident the market would balance itself out.

The final message came from Mr OPEC himself. And folks, this lady is not for turning. “If we had cut in November we would have to cut again and again as non-OPEC would be increasing production,” Secretary General Abdullah al-Badri said in Davos. “Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let’s produce the lower cost oil first and then produce the higher cost. Prices will rebound. I saw this 3-4 times in my life.” There may have been some cold comfort in that for non-OPEC and US drillers but it probably didn’t help that he said he was sure prices wouldn’t hit $25 a barrel. Definitely not $20. Eeek..