The challenge of OPEC is to keep oil prices above $ 100

In the last months of 2013 oil prices experienced downward fluctuations.

In the last two years a new technology, fracking, emerged in the energy landscape; according to international agencies that technology would allow the United States and other countries to raise its oil production and gas. Even, it has been announced that in the medium term, the United States will become first oil exporter in the world. If this scenario were to become reality and OPEC fails to take appropriate measures to cut production, world oil outlook could change.

In the scenario described above, the first effect of technology would feel in the prices that obviously would tend to decrease. If this occurs, the oil nations that depend on that income to fund their economies will suffer a serious blow. Not all oil producing countries would be affected in extreme degrees. Countries like Norway and some Arab nations have created sovereign funds with the resources that have obtained from oil and have made international investments, which ensure a significant revenue stream. Other countries such as Venezuela, have not had the same vision and are highly dependent on prices, for these countries the future is very uncertain.

United States turned to the new technology, fracking, because it was rapidly depleting their scarce reserves of conventional oil; had no choice. Same it happens to Mexico whose conventional oil reserves are almost exhausted.

Oil is the most important input in the global economy. For that reason it is not surprising that they can make ultra optimistic predictions about their behavior. These predictions have direct impact on prices. Only a few years ago started a worldwide campaign in which the great Caspian oil potential was highlighted. Such production potential never became reality. What the authors of the campaign sought was to lower oil prices. It is normal that often the discovery of new reserves is announced, but usually this information cannot be checked effectively in reality. In the case of fracking, we should expect to see if expectations created so far are or not truth.

The reality of the world oil market is that conventional oil is running out rapidly (1); international companies and governments know it. Therefore, they are desperately seeking new energy alternatives. The aim of them is to reduce their dependence from OPEC.

The challenge of OPEC is to keep oil prices above $ 100. To achieve that purpose shall take measures in the field of production. Incorporating production of Iran should not alter market prices. If all members of OPEC agree to maintain determined level of production the oil price can be kept over $ 100. The production of shale gas in the United States would not be enough to affect prices significantly if OPEC countries act in concert and reduce production, because the world needs the oil from OPEC.

(1) Pablo Rafael Gonzalez.  Running Out: How Global Shortages Change the Economic Paradigm. Algora Publishing, New York, 2008.