“Debate Raging: Will OPEC + Oil Cuts Rebound the Oil Market?
The Organization of the Petroleum Exporting Countries (OPEC) recently announced that it would be reducing oil production by 1.2 million barrels per day in an effort to increase prices and boost the global economy. While the cuts are welcome news to those in the oil industry, there is a lot of skepticism in the financial markets that the move will be effective. Consumers have become so accustomed to low gas prices that even a small cut of 1.2 million barrels a day is unlikely to result in substantially higher prices at the pump. Furthermore, the world is facing a steep economic downturn due to the coronavirus pandemic and a cut in production may not be enough to prevent a devastating collapse of the oil industry. The effectiveness of the OPEC oil cuts is further hampered by the fact that the United States, Russia, and other countries have also increased production, offsetting the benefits of the OPEC cuts. The excess production has resulted in a glut of oil on the global market that keeps prices low. As a result, OPEC’s cuts have been largely ineffective in boosting prices. OPEC’s oil cuts are also hindered by the fact that oil companies are much more efficient than they were in the past. Improved production methods have enabled companies to get more oil out of the ground with less manpower and fewer investments. This has kept prices low, making OPEC’s cuts relatively insignificant. Overall, there is a sense of skepticism in the financial markets regarding the effectiveness of OPEC’s oil cuts. It is unclear whether the cuts will be enough to support higher oil prices, and any gains that the organization makes will most likely be negated by increased production from other countries. Ultimately, the effectiveness of the OPEC cuts will be determined by how well the organization can balance the needs of the oil industry and the global economy.