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The OPEC Rebound: New Prices, New Problems

5/19/2015

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By Wei Wen 

Remember the days of $4/gallon gas? Fortunately for consumers, oil prices have drastically plummeted in the past few months, reducing the costs to never-before-seen digits. While the oil price drop may warrant a celebration for the laymen consumers of the road, political and economic analysts are finding the price dive quite concerning. With surplus oil production and continuously declining prices, the bottom for oil seems to be non-existent. But who’s to blame?
The answer presents itself twofold; OPEC’s tenacity and America’s boldness has equally led oil in its dive down the price abyss. Tired of its dependence on Middle Eastern Oil, the US recently chartered an exploration of its shale shelves. US oil companies struck gold, finding a small fortune of oil within the shale clusters; output of domestic oil exploded, entering the international market in unprecedented numbers. Half-way across the globe, OPEC leaders met in Vienna and confirmed their response to American oil. Instead of maintaining oil prices by cutting production, the Middle Eastern oil giants decided to wage war against the rookie, expediting oil drilling and increasing production. As a result of a massive surplus, oil prices dropped like a stone, from a consistent $110/barrel to only $70/barrel.
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Low prices and cheap oil may turn out to be more of a detriment than a godsend for the international sphere. With revenue at a low, incomes for Middle Eastern countries are diminished, threatening the stability of many major exclusive exporters. What’s truly scary is that the price decline symbolizes a power shift; OPEC no longer has a monopoly over the world’s oil supply. The balance has been disrupted, the equilibrium shifted. Each country now produces to benefit not the international community, but each individual. Without a guardian over the supply of oil, the future for barrel prices appears unclear, unpredictable, and extremely volatile. However, the economic blow isn’t unique to the Middle East; American oil companies (non-shelf drilling companies based in Texas, etc.) are watching prices commit suicide as other domestic drillers relentlessly purge the shelves of their crude oil. Consumers may find a few extra bucks in their pockets, but the collective whole has lost something invaluable.

Bleak hope lines the horizon; 2015 prices have yet to increase significantly and the supply still severely outweighs the demand. Despite the aforementioned, the market is fortunately showing signs of decline; American rigs are dismantling and prices are stabilizing. OPEC may not be the king, but it still sits on the pricing throne. At long last, the price for oil may have hit rock bottom. Or has it?
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