With the global oil market currently oversupplied to the tune of an estimated 2 million barrels per day, oil producer group Opec has struggled to formulate an effective strategy aside from “let the market sort it out.” For decades Opec played a price-setting role by increasing production to boost supply when prices were deemed too high. And the producers throttled output back to constrain supply and thus add price support during periods of oil price decline.
But things are different now. At a basic level, the current supply of oil exceeds demand by such a wide margin – due in large part to the US oil production boom – that Opec producers would need to drastically cut their output in order to balance the market. Additionally, de facto Opec leader Saudi Arabia would be forced to do most of the heavy lifting because they maintain the greatest spare production capacity in the group, meaning they can quickly ramp production up and down. It is widely believed Saudi Arabia has the ability to produce over 12 million b/d.
But things are different now. At a basic level, the current supply of oil exceeds demand by such a wide margin – due in large part to the US oil production boom – that Opec producers would need to drastically cut their output in order to balance the market. Additionally, de facto Opec leader Saudi Arabia would be forced to do most of the heavy lifting because they maintain the greatest spare production capacity in the group, meaning they can quickly ramp production up and down. It is widely believed Saudi Arabia has the ability to produce over 12 million b/d.
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