Concern regarding OPEC grows as oil prices fall

Due to the ever-increasing production of oil from the U.S., OPEC greatly lowered estimates for how much crude oil it will need to produce next year to 28.9 million barrels of oil per day.

Oil prices hit a new five-year low Dec. 10 following the Organization of Petroleum Exporting Countries' reduced crude oil production estimates for 2015, USA Today reported. The price of brent crude oil fell 3.3 percent to settle at $64.62 and Benchmark West Texas Intermediate crude declined 3.9 percent to $61.36.

Due to the ever-increasing production of oil from the U.S., OPEC greatly lowered estimates for how much crude oil it will need to produce next year to 28.9 million barrels of oil per day. This new figure is approximately 300,000 fewer barrels per day than OPEC originally cited. According to Bloomberg, the new estimate is also the lowest it has been since 2003.

Prices affect all business
Some worry decreasing crude oil prices will cause smaller oil exploration and production companies to cut back on projects or go out of business. If prices fall too low, smaller firms could find it impossible to make a profit.

However, it is not just small firms worrying over falling prices. Large producers such as BP and OPEC member Venezuela also have to face the consequences of new prices. BP announced it will spend around $1 billion to restructure its 2015 investments and lay off workers to account for changes in oil production costs and lowered prices, USA Today reported.

Venezuela hopes OPEC will meet again before its regularly scheduled June session next year to address the situation, Bloomberg stated.

"Our position on OPEC is that they defend the fair price of our oil," Venezuela Foreign Minister Rafael Ramirez said on TV, according to Bloomberg. "We don't believe in the free market. We must make an effort to reduce overproduction of oil."

Is OPEC in trouble?
Some investment professionals believe falling crude oil prices are sign that OPEC is not as strong as it used to be, The Telegraph reported. Bank of America Commodity Chief Francisco Blanch warned OPEC is "effectively dissolved" because of its inability to stabilize prices. Bank of America stated the free market is now more likely to determine global oil prices.

 

More information on OPEC can be found at PennEnergy's research area.

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