Low Oil Prices Increasing Pressure on OPEC, Keystone Pipeline Rejected
- Low oil prices have the OPEC internally divided on supply-side decisions
- December’s OPEC meeting to decide oil production levels and outlook
- The US President rejected a bill to build the Keystone XL pipeline project
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US Crude Oil continues to consolidate under 50 dollars per barrel with prices hovering around 6 year lows. The Organization of Petroleum Exporting Countries (OPEC) was supposed to release its long-term goals this week. However, low oil prices appear to have the oligarchy at odds internally. According to witnesses, members could not settle on a long-term outlook for the group’s prospects.
The delay in the release comes ahead of a key meeting in December. It is during this gathering that OPEC could decide whether or not to curb its oil supply, or hold steady. This comes at a time where there is an oil-supply glut which has significantly deflated prices and in turn curbed inflation pressures globally. Last year, the group did not cut back supply and kept pumping at record levels. The low prices are financial obstacles for heavy oil-exporting nations such as Algeria and Iran, which are both members of the OPEC.
OPEC is the largest producer of the precious commodity in the world. It is vital for these countries’ revenues to remain in this position against major competitors (US, Canada). Without making an adjustment to production levels, low oil prices can make it difficult for OPEC members (Algeria, Iran, Venezuela) to pay off production costs and loans. In turn, the deflated returns for new or smaller producers in the world can prevent their ability to catch up to OPEC’s dominance.For the booming US fracking industry for example, rapid expansion necessitated large loans that are increasingly difficult to pay down.
Meanwhile in the western hemisphere, the United States President Barrack Obama rejected a bill for the Keystone XL pipeline. The creation of the pipeline could cut costs for transporting the commodity. This might leave companies with more total revenue which in-turn can translate to additional growth, good for the US economy. Regardless, Friday’s NFPs took the spotlight making a Fed rate hike before year’s end more likely, driving the US Dollar to a fresh 2015 and 12-year high.
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