The Organisation of Petroleum Exporting Countries (Opec) must find a way to end the confusion and competition that is currently dominating the global oil market.
Last November, Opec members failed to come to any type of cohesive agreement on production, resulting in a policy that allowed each member to pump as much as it saw fit. Since then, crude oil has lost nearly a third of its value, plunging to below $27 (Dh99.3) a barrel at one point last week. Surpluses continue to be a problem, with the International Energy Agency estimating a daily surplus of 1.5 million barrels on average for the first half of 2016. Stories persist of oil cargo ships sitting in port, waiting for someone to buy them.
Iran’s re-entry onto the international oil market, with an estimated 500,000 barrels a day, only looks to make the situation worse.
The impact from the drop in oil prices is being felt everywhere — from reduced regional budgets to energy company defaults in the United States. Oil is currently a commodity that is out of control.
One of those oil producing countries, Oman, who is not a member of Opec, yesterday called for a 5 to 10 per cent cut in oil production and asked other oil producers to follow suit, in the hope that less production will halt the fall in prices.
At this point, stopping — not increasing oil prices — is the main priority, since any substantial increase will only invite US shale oil back on the market.
But Opec, or at least some of its members, should consider a cut, if for no other reason than to stop the bleeding that is making the entire oil industry suffer.
If Opec fails to do this, it will not only ensure that oil prices continue to fall, but risks losing its authority as a market force.
An organisation that was founded on the idea of ensuring fair returns on oil for its members, but fails to even consider production limits, brings nothing to the table except continued turmoil.
