The top US energy diplomat said he has little faith an OPEC deal would raise world crude prices for long because America’s drilling revolution and global efficiency gains mean energy markets are resilient to producer cuts.
The Organization of Petroleum Exporting Countries agreed on Wednesday to a modest oil output cut of 700,000 barrels per day, in an effort to boost prices that have plummeted from above US$100 a barrel in 2014 to under $50 a barrel on Thursday.
Details are to be worked out in a November meeting, but there has been some scepticism that the cuts will come to fruition given the growth in US oil drilling.
“I don’t think it’s going to work,” Amos Hochstein, the State Department’s energy envoy, said in an interview on Thursday. Over time, the resulting higher prices will trigger a significant boost in US production, causing prices to fall due to a supply glut, or a gain in market share for US producers.
“Either would be self-defeating for OPEC,” Hochstein said.
After OPEC was formed in 1960, the group’s deals to cut oil production raised prices for months or years at a time.