OPEC decision on production driven by hard economic realities

The decision by the Organisation of Petroleum Exporting Countries (OPEC) offers major importers of hydrocarbons, such as China and Japan, the opportunity to benefit from lower energy import bills, but OPEC’s decision is hardly altruistic.

In fact, there are logical reasons why OPEC should have adopted such a stance at this point in its history and with what is happening in the world economy.

On a generic level, OPEC members are fully aware that the burning of hydrocarbons to produce the energy that drives the global economy is also closely linked to the issues debated at the United Nations Conference on Climate Change over the weekend.

While the momentum towards greater global reliance on renewable energy sources will continue, OPEC members are not oblivious to the fact that, notwithstanding climate change concerns, everyone loves a bargain.

Also, if, in the long term, the global economy seeks to wean itself off its dependency on hydrocarbons as an energy source, OPEC might as well seek to sell as much as it can now and in the coming years.

Of course, the lower the oil price, the greater the discomfiture of higher cost producers such as Canada and the United States but while the Canadian dollar has undoubtedly been negatively affected by the falling oil price, the US dollar has stayed strong.