On Friday, OPEC said it would keep its production level unchanged, basically legitimizing the 1.5 million barrels a day it has been producing over its output ceiling of 30 million barrels a day.
Market analysts expect oil prices to fluctuate in the coming months. Given the disarray in OPEC and non-robust economic growth in China and Europe, oil prices will remain weak and will probably test the $30 a barrel price sooner rather than later, according to an interview with T. Homer Bonitsis, a finance professor at the New Jersey Institute of Technology.
Given the plunge in oil prices on Friday, it’s obvious that market participants are disappointed that the Organization of the Petroleum Exporting Countries (OPEC) didn’t cut production as many had expected. Market analysts expect that the group’s decision won’t have a long-term impact anyway.
A glut of crude may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc. There’s less than a 50 percent chance that prices will drop to $20 a barrel, most likely when refineries shut in March for maintenance, Jeffrey Currie, head of commodities research at the bank, said in an interview earlier in September. Goldman’s long-term forecast for crude is at $50 a barrel.
The Saudi strategy of attempting to knock out competitors by using predatory pricing is not a game changer long-term. Some producers may shut down temporarily, but will reopen when prices recover again. Indeed, some producers may go bankrupt—only to have their assets sold at bargain prices. The new investors in these assets have a lower fixed cost structure to produce oil; in essence, creating a lower-cost competitor.
