Some of the biggest players in the energy industry are meeting in Houston this week for the annual IHS CERAWeek conference. The event, hosted by research group IHS, brings together CEOs and energy ministers from around the globe to discuss the state of the industry. And what a state it’s in – with low oil prices and a glut in the market.
Reporter Mark Dewey was there for the first day of the conference. He says that one of the biggest themes was how to wrangle the market back under control. One way to do that is reduce the production that’s driving prices down. But there’s some finger pointing about whose responsibility that should be.
“OPEC (Organization of the Petroleum Exporting Countries) is blaming us, Texas, specifically – or more generally, U.S. shale producers – for oversupplying the market for oil,” Dewey says.
Part of the problem is that the low prices are, in a way, driving up production. As prices fall, producers put out more barrels of oil to compensate for lost profits. That pushes prices even lower, perpetuating the cycle.
“I think OPEC’s no longer able to control the market, and once the price of oil starts dropping, the mechanism, the math is this: If you were making $100 by selling a barrel of oil, and price per barrel drops to $50, now you need to pump two barrels,” Dewey says. “So everyone’s pumping. The Saudis, The Texans, the Venezuelans, the Iranians now are going to be pumping more.”
That loss of control has given OPEC a sense of uncertainty, Dewey says. That’s a major shift from when they drove the market.
“Something that hit me pretty strongly was the despair that seemed to be felt by OPEC,” Dewey says. “I mean, literally throwing up their hands and saying ‘We just can’t control this market anymore.’ I have really clear memories of the 1970s – the gas lines, economic dislocation, all of these problems in the American economy caused by these OPEC ministers who were ruling the world during that time. And now to see them so powerless was very striking.”
Listen to the full interview in the audio player above.