Is OPEC鈥檚 oil strategy paying off?
The Organization of the Petroleum Exporting Countries, otherwise known as OPEC, that its strategy of flooding the market with cheap oil, despite a global oversupply, will pay off next year when demand for its oil will rise.
鈥淒emand is picking up. Good! Supply is slowing, right? That is a fact. You can see,鈥� Saudi Arabia鈥檚 oil minister Ali al-Naimi told reporters before a meeting of OPEC leaders in June, reported the Financial Times.
鈥淭he strategy is working,鈥� he later said.
The International Energy Agency (IEA), in a report on Friday, confirmed OPEC鈥檚 reason for optimism, reporting that supply from non-OPEC countries, including the United States, will .
鈥淎s lower prices and reduced spending take their toll, non-OPEC supply growth is expected to decelerate sharply through the end of the year and decline in 2016 鈥� with US growth hit hardest,鈥� says the IEA鈥檚 report.
If it costs more to produce a barrel of oil than to sell it at the current price of about $45 per barrel, a six-year-low, companies 鈥� as some have 鈥� or go bankrupt.
Oil prices have declined by more than half since last year鈥檚 peak of about $115 per barrel.
Analysts say American oil producers by at least 500,000 barrels a day, reports The Wall Street Journal, to even out supply and make production a worthwhile investment.
Or, they need to find more efficient methods of drilling in more productive areas to make production cheaper, which is exactly what led to the oil boom in the first place back in 2008. New technologies, like fracking, allowed producers to drill deeper, helping the US surpass Saudi Arabia as the .
In the meantime, the 12 OPEC countries 鈥� including Saudi Arabia, Iran, and Iraq 鈥� keep producing more oil, hoping to keep prices low enough to make it tough for US companies to do business. , though Iran plans to ramp up production once international sanctions are lifted, thanks to its nuclear deal with the US.
The IEA said in its recent report that OPEC鈥檚 approach appears to be paying off, reports Platts.
鈥淥n the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, 鈥榠nefficient鈥� production,鈥� according to the IEA, reports Platts.
Though not everyone agrees with the assessment.
". Shale production will never go away," Fadel Gheit, an energy industry analyst with Oppenheimer & Co. told CNN Money.
"The beauty of shale production is you can dial it up or dial it down. You can adjust your speed depending on the traffic. But you will not get out of the road. You're still in the game," he said.
