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OPEC oil prices


June 8 2015, 07.30am GMT


While OPEC made it quite clear on Friday that they are determined to maintain their market share in the oil industry, the big question now turns to the impact this will have on the oil price.

On Friday, the Organization of the Petroleum Exporting Countries (OPEC) stood firm and as they did in November last year, the decision was made not to cut production.

This means that the oil cartel will continue to output 30 million barrels of oil a day.

The fact is, there is a global supply glut of this commodity and while OPEC’s mission statement states that the cartel works to “ensure the stabilization of oil markets,” this does not seem to be evident.

In 2012, OPEC implemented the oil ceiling and this has remained in place since then.

According to a Platts survey, in April, the actual production was estimated at 30.93 million barrels a day. Platts is a global provider of commodities and energy information.

Meanwhile, Ann-Louise Hittle, the VP of macro oils at Wood Mackenzie, stated that OPEC is clearly committed to maintaining their market share and is not taking the oil prices into consideration. While OPEC has maintained their status, the prices for WTI crude oil (CLN5, -0.81%) and Brent crude oil (LCON5, -0.65%) are still almost 50% down from their peak reached last summer. Since then, production has remained strong while the global market remains oversupplied.

Since OPEC made the decision to maintain their production levels at their last meeting in November as well, it is evident that market share is far more important than the oil prices for the oil cartel. Added to this, maintaining their position can be viewed as a direct message to the non-OPEC producers, specifically the shale producers in the U.S., that they should decrease their share of the oil market in the world.

According to Colin Cieszynski, chief market strategist at CMC Markets, with the latest decision by OPEC, it seems that the global supply glut will be resolved by increased demand only and not by production cuts.

Cieszynski added that this scenario played out as well in the 1980s and it dragged on for a few years. He also went on to warn investors that they can expect to see a lot of price volatility in the crude oil prices over the next few months.

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