The Organization of Petroleum Exporting Countries ordered an additional 1 million barrels a day, a 1% increase over the current supply that can change the course of the oil-producing countries
In a meeting in Vienna, the member countries of the Organization of Petroleum Exporting Countries (OPEC) agreed to increase oil production by around 1 million barrels per day. The cut in oil production ordered by the same organization received an extension in November last year. However, this advance puts an end to that ruling, which sought to increase oil prices to stabilize the market.
During the week, markets have been reacting as a result of speculation about what would happen today in Vienna, but, almost immediately after OPEC gave the order to increase crude production, barrel prices of oil reacted.
On June 21, the price of a barrel of oil fell by 2%, responding to the suspicions that today's meeting did not increase production enough to supply the growing demand for oil, something that would contribute to the volatility of the market.
However, before today's decision, prices rebounded, rising the same 2% that fell, responding to the materialization of the increase in production. Although many of the investor's doubts were appeased, the increase in production, corresponding to 1% of the world supply, is still below what was expected, and therefore the prospects were not good enough to value the barrel of oil above what fell yesterday.
Although the figure agreed for the increase is around one million barrels per day, the different compliance quotas and production capacities of the OPEC member countries means that the tangible increase in the oil supply will surely be lower. In fact, the newspaper Expansión de España estimates that the real increase in production is closer to 600,000 barrels, at least while the countries reactivate their extractive infrastructure and make the necessary domestic adjustments to rebound their oil production.
The immediate consequences of the OPEC order, then, include the rebound in oil prices in the short term, which follow a generalized increase in recent months, and the recovery of the fall that came as a result of speculation about of today's meeting in Vienna. However, in the long term, oil prices should fall again, albeit moderately, in response to a relative abundance of crude in international markets.
A challenge for Venezuela
Venezuela, which has cut its oil production well below the cuts that were previously in force in OPEC and had trouble to meet its production quotas, now faces pressure to reactivate its extraction and commercialization of crude oil.
Venezuela's oil production, which plummets 10% each quarter according to the consultancy Global Data, is in critical situation due to the sanctions of the United States and the economic crisis that plagues the country, which makes it difficult to assume operating costs of the state oil company PDVSA.
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In light of the OPEC ruling issued today, Venezuela's oil minister, Manuel Quevedo, declared that Venezuela would take on the challenge, but would seek help from Russia and China to meet the new targets.
"It is an objective that is very challenging for PDVSA (...) but it is the goal we have set," Quevedo declared. "We hope that, by the end of the year, we have recovered the lost production, we have the capacity for it, so that's why we've said it . "
LatinAmerican Post | Pedro Bernal
Translated from "Nuevo pacto de la OPEP: ¿se logrará estabilizar el mercado del petróleo?"