Global crude oil demand outlook downbeat, OPEC may respond by hiking oil production even further. Although, the Organization has never before considered production hikes as a way of offsetting its declining output, the news is causing a stir. Many analysts are predicting that OPEC will make a surprise announcement in its next meeting in June or July, and then start to implement a supply cut.
Many analysts believe that OPEC will announce a large-scale production cut that will cut its monthly oil production by one million barrels per day, thereby increasing its market share. Some say that this will cause the price of crude oil to shoot up to $100 per barrel; others argue that it is not enough of an increase to make a real impact on the global market.
OPEC’s current production of crude oil is just below two million barrels per day, but this is still way too much for most refineries, pipeline networks and other oil storage facilities. When the cartel does start implementing cuts, there is a big possibility that crude oil prices will shoot up because supply will exceed demand. This would be especially so if demand increases too quickly. In such a scenario, it would be difficult for companies to absorb the cost.
If the oil demand outlook downbeat, then it is quite possible that OPEC will take action, and implement its own cuts in its production. It may do this through either a short term supply cut or even a major one. However, if there is an outbreak of war in Iraq, there could be a delay in the decision to increase output and also, other countries’ production may be affected.
In fact, many analysts believe that the situation is worse than that, as it is not just crude oil futures and prices that are expected to fall. Oil services firms will also suffer, and this could lead to significant layoffs. Since these industries use oil to operate, and if there is too much production going on at the same time, it can be very risky.
If OPEC decides to cut production, there are a number of reasons why. One of the main reasons that analysts expect the cartel to make a big move is that it is afraid that it is losing market share. That is because it does not make enough money to cover its expenses and because it needs to maintain its position as the leading provider of crude oil.
As a result of that, if it were to start increasing its supply, oil prices would probably shoot up as oil service companies would have to absorb the added cost. and also, the price may drop back to the lower end of its range.
However, since oil prices have already risen so high, this is unlikely to happen, and that is why analysts believe that OPEC will continue to remain in its stance. In any case, OPEC is not yet willing to act because of the risk of being forced out of the market by an unforeseen change in oil production.
Therefore, it is quite possible that the oil cartel will maintain its production level, and it may even increase it, if it feels that there is a need to do so. But what it may do instead is to allow the price of oil to go down a bit, and maybe take some action that is more direct, such as cutting off exports.
Of course, if the demand outlook for crude oil is good, it is not going to be very difficult for OPEC to convince its fellow producers to cut their production levels, as well. For one, the market would likely see it as more of a competition issue rather than as a supply problem.
In fact, it is the rising production of oil that drives oil prices, which is the key to this, and that is why it is very important for the cartel to continue its output and keep oil prices low. It is for this reason that the current economic recession has forced many companies to slow down production and stop drilling new wells, and that it has caused oil prices to skyrocket to all time highs.
However, if the oil production continues to rise at the same time, the market will have no choice but to raise the prices to balance things out. In fact, the price may go even higher, which means that OPEC may indeed feel compelled to take action and increase production.