By: ProcurementIQ Analyst, Roshan Sathyanarayana
The price of crude oil has been falling in recent years, going from over $100 per barrel in 2014 to hovering around $50 per barrel in 2017. In light of declining oil prices, the Organization of the Petroleum Exporting Countries (OPEC) has spent much of 2017 taking steps to stimulate a rebound in crude oil prices. However, there are a myriad of issues across OPEC and non-OPEC nations that have prevented the cartel’s mandated supply cuts from achieving their expected level of success. The U.S. Energy Information Administration (EIA) and OPEC expect oil prices to rebound in 2017 after three years of declines, but there are reasons that suggest this effect will not be as profound as OPEC expects. In fact, it may not happen at all. ProcurementIQ has highlighted the impact of uncertain crude oil prices on various markets.
Oil Cuts Miss the Mark
In 2016, OPEC began spearheading a proposed cut of 1.8 million barrels of oil per day. Non-OPEC nations, on average, have never met more than 80% of a proposed cut in any given month since they do not have the same financial incentive that OPEC nations do. Falling oil prices have provided opportunities for these countries to grow their burgeoning energy industries.
However, OPEC has not received the anticipated level of compliance from its own nations either. In June and July of 2017, for example, OPEC countries only met an average of 85% of the targeted cuts. In fact, Saudi Arabia, the UAE and Iraq, which are the three largest oil producers in OPEC, are averaging only 80% of their targeted cuts. Venezuela is one of the few leading oil producers that have been greatly reducing their oil production. However, this is largely due to severe economic distress in the country preventing the state-run oil company from continuing to produce at their normal levels. While these cuts were supposed to end in mid-2017, OPEC has opted to extend the cuts in production by nine months, until March 2018. OPEC and non-OPEC officials will be gathering in Vienna on September 22nd, 2017 to deliberate further production cuts.