As the world’s oil market continues to suffer from a crisis of oversupply, and prices continue to drop, skepticism over OPEC’s decision to cut production of oil persists. The Organization of the Petroleum Exporting Countries (OPEC) recently announced it would reduce its production by 9.7 million barrels per day, which would mark the most significant production cut in the organization’s history. While many analysts view OPEC’s decision as necessary to help address the excess supply issue, others remain skeptical of the move.
To start, some are concerned that the output reduction might not be enough to reduce global supply to a sustainable level, as countries outside of OPEC are still producing large amounts of oil, such as the United States and Russia. Additionally, as the demand for oil has been low in many parts of the world, it is uncertain if the cut will be sufficient to boost the weakened market.
Moreover, some question the reliability of OPEC members, such as Saudi Arabia, to stick to the agreement and keep their sanctioned production cuts. Saudi Arabia, in particular, is the second-largest producer in OPEC behind Iraq, and their compliance with the cut will be critical to its success. Additionally, OPEC members have often disagreed amongst themselves on how output should be managed, so there is no guarantee that the output cuts won’t be undermined by members making unilateral adjustments.
Critics of the OPEC decision also note that it will likely lead to higher oil prices in the future. While higher prices would help many companies in the industry, it could also have the effect of reducing energy security and forcing countries dependent on oil to increase their reliance on imports. This could become a significant problem for countries with weaker economies, as they are already feeling the strain of the price drop.
In sum, although OPEC’s decision to reduce oil production is seen as necessary to address oversupply in the global oil market, there are a number of factors raising doubts over the reliability and effectiveness of the cuts. Ultimately, the success of the implementation of the production cuts will depend on members’ compliance. Only time will tell if OPEC’s decision is successful.