Oil Exporters Act To Bolster Prices

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At last the major oil producing nations have blinked and decided to act in the stand-off over reducing the flow of oil to bolster prices.

The price of oil has plunged over the past 18 months from more than $100 a barrel to around $30 a barrel.

Oil importers have rubbed their hands with glee because the cost of energy to industry and fuel at the pumps for drivers has become a lot cheaper.

On the other hand, oil exporters have seen their earnings plummet, wells mothballed and exploration projects scrapped, but have doggedly continued to pump oil from the ground as they fear if they take unilateral action to decrease supplies, someone else will nip and steal their market share.

Then, Saudi Arabia and Russia, two of the world’s largest oil producers agreed to freeze output at January levels if other major producers also agreed to keep to quotas.

The key players

The deal was brokered by the Organisation of Petroleum Exporting Countries (OPEC), which Saudi Arabia belongs to, but Russia does not.

Several others, such as Venezuela, quickly agreed but Iran and Iraq remain outside the circle – although the government has hinted that they will play ball.

Iraq has only recently re-entered the market and became OPEC’s second largest producer of oil in January with an output of 4.7 million barrels a day.

Iran is an even more recent oil competitor after sanctions by Western governments were lifted last month in response to promises to stop developing nuclear weapons.

The problem for Iran is the January oil quota is 50% or less than the government wants to export to generate cash to get the economy back on track after sanctions.

Iran is currently producing around 500,000 barrels a day.

How low will prices fall?

Russia is not a member of OPEC, but has agreed to the quota limit because the country is also facing sanctions over action in The Ukraine and expects oil exports to remain flat for the coming year.

The question is how low can oil prices fall?

Banks and pundits have speculated that the price could slip between the $15 and $20 a barrel mark, depending on demand from the slowing Chinese economy.

While oil firms have kept going by axing jobs and exploration, the tipping point is when does pumping oil become unviable?

This depends on the country and the cost per barrel to bring oil to market. US shale oil and deep water drilling in the North Sea are expensive products to take out of the ground or seabed.

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