LONDON -- If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.
Over the past six weeks, representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed repeatedly that the group won't curb output to halt the biggest drop in crude prices since 2008. Qatar's estimate for the global oversupply is among the biggest of any producing country. These countries actually want -- and are achieving -- further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays and Commerzbank.
Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target Nov. 27. That decision to maintain production levels, while squeezing revenue for OPEC members in 2015, aims at preserving their market share for years to come.
"The faster you bring the price down, the quicker you will have a response from U.S. production -- that is the expectation and the hope," said Jamie Webster, an analyst at consultants IHS in Washington, D.C. "I cannot recall a time when several members were actively pushing the price down in both word and deed."
U.S. crude production totaled 9.13 million barrels per day in early January, up about 1 million barrels from a year ago and 49,000 from November's OPEC meeting. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted U.S. output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels per day in November, according to the Energy Information Administration.
The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. Oil ministries of the four countries did not respond to emails and calls for comment.
The price decline will cost all 12 OPEC members combined a total of $257 billion in lost revenue this year, according to the Energy Information Agency. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial. Venezuelan President Nicolas Maduro said Dec. 13 that "there is no possibility of default," and on Wednesday said that the country has "the capacity to obtain the financing" it needs.
OPEC won't reverse course even if oil prices fall as low as $20 per barrel or non-OPEC countries offer to help with production cuts, Saudi Arabian Oil Minister Ali Al-Naimi said Dec. 21. The kingdom may even bolster output if non-OPEC nations do so, he said. The global oversupply is 2 million barrels per day, or 6.7 percent of OPEC output, Qatar estimates.
The group will stand by its decision not to cut output even if prices fall and wait at least three months before considering an emergency meeting, UAE Energy Minister Suhail Al-Mazrouei said Dec. 14. He said clearing the surplus may take years, Abu Dhabi-based newspaper The National reported Tuesday.
OPEC has no plans to meet before its next scheduled conference in June, Kuwaiti Oil Minister Ali al-Omair said Dec. 16. Prices will recover in the second half as oil producers with the highest costs are compelled to scale back operations, he said.
It wouldn't be the first time U.S. drillers are caught up in an OPEC battle for market share.
In 1986, Saudi Arabia opened its taps and sparked a four-month, 67 percent plunge that left oil just above $10 per barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world's oil market.
"It seems in their interest to have a swift fall rather than a slow, grinding fall," Miswin Mahesh, an analyst at Barclays in London, said. "A swift drop in prices would bring more changes to non-OPEC supply," while a more gradual decline would let companies in other oil nations "merge and become more efficient."
Not all share this view. UBS analysts said that hastening a price slump isn't a practical strategy because oil demand and supply respond too slowly to price changes.
"I doubt that they target a lower price," Giovanni Staunovo, an analyst at UBS in Zurich, said by email. "Supply and demand are quite inelastic in the short-term."
Saudi Arabian oil ministers sought to undermine prices in the 1980s and 1990s with their public comments, according to Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. The tactic was used to pressure other OPEC members into agreeing to quota changes, she said.
There are signs that OPEC's approach is starting to work. Rigs targeting oil in the U.S. declined for the sixth time in seven weeks, by 17 to 1,482 last week, Baker Hughes said on its website last week. There will be a serious decline in U.S. shale oil investment in 2015, Fatih Birol, chief economist of the International Energy Agency in Paris, said Dec. 22.
"Some OPEC countries, most specifically Gulf states, obviously think that it's best to get unpleasant things over and done with," Eugen Weinberg, head of commodities research at Commerzbank, said by email from Frankfurt. "The recent wordings showed they are still firm about this strategy."
Information for this article was contributed by Dan Murtaugh, Fiona MacDonald, Anthony DiPaola, Maher Chmaytelli and Mark Shenk of Bloomberg News.
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