On Friday, OPEC decided it would not cut its oil production despite the fact prices have dropped by 40% from one year ago. OPEC had tried to make this move as part of its strategy to drive the shale oil producers in the U.S. out of business.
However, observers in the industry believe the oil cartel did not have any other choice expect to keep pumping its oil due to a fading grip on the petroleum market.
The oil cartel used to represent close to 60% of the world oil market. However, today the number has dropped to just over 40% largely due to surging production the U.S.
The positive news for drivers in the U.S. is that prices at their gas pumps should stay low. The national average for a gallon of regular is $2.75 versus more than $3.60 one year ago.
A dialing back by OPEC of its output would likely have increased the price, at least for the short term, Prices of crude oil dropped by 2% on Friday following the OPEC announcement.
The decision on Friday was expected by most. In a number of ways, the cartel could not take any other decision. They have become cornered with their back against the wall, said an industry analysts based in the Middle East.
If OPEC cut output as a number of its members had insisted, it might have caused a spike in gas prices, but at a big cost. U.S. producers of shale and others such as Russia would simply have ramped up their own production to steal more of the market share.
Unless a special meeting is called, OPEC’s latest decision will last to at least December 4 when they hold their next scheduled meeting.
One analyst said that due to the resilience of shale and the current oversupply, oil prices would likely fluctuate between $50 and $70 per barrel for the remainder of this year and possibly longer.