GLOBAL OIL MARKETS UPDATE: IS OPEC ON A PRICE WAR WITH THE US? The oil price plunge is good for global economic recovery but bad for producer nations including OPEC. However, this game cant go on beyond 2015 as the generous welfare schemes in the most OPEC producer nations cannot be sustained without recourse to depleting their forex reserves with significant current account (balance of payments and capital account) implications. Most OPEC member countries require a price above $80 a barrel to balance their government budgets and many need prices to be above $100 a barrel. Shale threat: OPECs strategy of maintaining output may be aimed at retaining dominance of the market in the face of increasing shale oil production in the United States. The shale boom has been one of the drivers behind the decline in the oil price, but as the oil price dips, shale becomes less economical to produce. If oil prices are allowed to remain low for some time that could cap shale production over the longer term. So keeping oil prices low may in fact make sense for OPEC.
Posted on: Sat, 29 Nov 2014 02:54:46 +0000
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