The latest OPEC oil cuts have left much of the global energy market in a state of surprise and skepticism. In December of 2018, the Organization of the Petroleum Exporting Countries (OPEC) agreed to reduce their collective crude oil output in 2019 by approximately 1 million barrels per day, to an estimated 30.8 million barrels per day, making the cuts the largest in nearly seven years. While OPEC had initially proposed the move as a measure to help curb the global supply of crude oil and keep oil prices from dropping too low, the recent announcement has been largely met with skepticism from many in the energy market.
Critics have cited a number of factors that they believe could render the cut ineffective, with the most significant being Iraq’s lack of compliance to agreed production levels with other members of OPEC. Many fear that, with a high level of unrest in Iraq, it is highly unlikely that the country will adhere to their voluntary reductions in the next six months.
Another concern is the impact of US shale production, which is responsible for a significant portion of global production and heightened competition with OPEC countries in recent years. As many US oil companies have become more efficient and flexible in response to price fluctuations, OPEC has had to adjust production cuts accordingly, with the prospect of US output outpacing the scheduled OPEC cut further dimming the overall impact.
As these uncertainties linger, many analysts remain increasingly wary of price variations going forward. With a general consensus that the agreed cuts will likely have little impact on the oil markets, many are predicting that prices will remain relatively flat for the next six months and beyond. It has become increasingly clear that the stage is being set for greater volatility if OPEC is unable to make good on the limits of their own production.
While the long-term fate of oil prices remains uncertain, one thing is certain – the latest proposed OPEC cuts are signaling that their influence over the global market is weakening due to a variety of factors, leaving many to remain skeptical of their impact on the market.
