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OPEC decision has muted impact on oil market share

Hydrocarbon Engineering,

According to Business Monitor International (BMI), the impact of lower oil prices on the balance of global oil production will be relatively muted over the next five years. The Middle East will remain the dominant producer, holding 31% of the oil market share in both 2014 and 2019. OPEC’s share of the market will increase only marginally, from 41% to 42% over the same period.

OPEC’s decision not to cut its 30 million bpd production ceiling on 27 November 2014 has repeatedly been framed as a decision to defend market share at the expense of price. In the view of BMI, this was not the case. The limited impact of lower oil prices on the regional balance of production lends support to this view.

OPEC was not acting to defend its share of the market any more than it was acting to defend oil price. Had OPEC cut, given the pace of non-OPEC production growth, any decrease in output would rapidly have been offset and the lift in prices temporary at best. In effect, lower cost barrels would have been taken off the market, in order to make room for higher cost production. OPEC’s inaction allows supply and demand to rebalance organically, where lower prices clear the market of the highest cost (largely non-OPEC) production.

Producers are concerned with neither market share nor prices in and of themselves; their chief concern is with revenue. BMI believes OPEC’s decision was made in defence of revenue. As investment in high cost areas such as deepwater and unconventional falls and non-OPEC production weakens, revenue can gradually recover alongside improving prices.

Adapted from a report by Emma McAleavey.

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