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Published on : Feb 11, 2015

The famous oil producer group OPEC struggles to create an effective strategy in the market - to let the market sort it out. The global oil market presently oversupplied to the alignment of estimated two million barrels per day.  

For years and decades, OPEC has marked its presence in the production to boost supply when it comes to prices that were quoted too high. In addition, the energy producers limited the output back to supply and added price support at the time of oil price decline. 

The things work differently now. The current supply of oil surpasses the demands by a wide margin especially in larger parts of the U.S. oil production boom. The producers at OPEC will have to cut on their output expenses in order to balance out the market.

The Saudi Arabia OPEC leader will maintain the spare production capacity in the group – as to quickly ramping production up and down.  

 Saudi Arabia currently has the ability to produce over 12 million b/d.

A cut of 4.7 million b/d or more is estimated to bring the demand and supply a little closer to the balance that would support oil prices, said analysts at EIRAG. 

Many nations including Libya, Nigeria, and Venezuela experience unmet constraints when it comes to substantial oil productions. The government reliance on the oil export revenue is at unrest too.     

Saudi’s have to bear the brunt of oil production cut. The production in the country is presently estimated to be around 9.8 million b/d with around 4 million b/d technically and financially remaining challenging.   

Saudi had made a major production cut more than two decades ago and it took a lot of time to regain the market share lost as a result. The government in Saudi owns more than $700 in net foreign currency reserves and no debts at all. 

OPEC members with feeble balance sheets are increasingly creating pressure to protect their prices as long as market conditions last.