Russian and OPEC oil cuts?

No surprise here! Russia and the OPEC states need higher prices, since petroleum is, for them, a major, in some cases the major, source of revenue. Neither want to see lower oil prices.

If these countries do limit production further, OPEC has already set lower production limits, oil prices will rise and gasoline in the US will likewise become more expensive. That’s the downside.

But there is an upside, and it’s long term. Higher oil prices will make marginal fracking and drilling operations here cost-effective. In other words, lower production by OPEC and Russia, will most likely cause an offsetting, to some extent, increase in production in the US and other fracking areas. The other long-term downside for Russia and OPEC, is that as they cut production, they inevitably lose market share. When your production decreases, for whatever reason, you cannot supply all your customers. Other suppliers move in and begin supplying these customers.

This has happened before to OPEC in the 1980s. Ultimately, they had to recapture their market share. How is that done? Simply! You increase production and undercut your competitors by offering your product at a lower price that cannot be beaten.

https://www.wsj.com/articles/opec-russia-oil-officials-hint-at-extending-production-cuts-1524225441

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s