OPEC is having an emergency meeting Sunday to discuss the extent to which they should raise output. Furthermore, their proposed increase of up to 1.5 million barrels/day is a large increase for them, and drove down crude oil futures prices. Some news reports have argued that this is a dramatic policy shift for OPEC, but I disagree; OPEC’s stated policy is to produce in amounts that lead to a benchmark price of $22-28/barrel. It’s entirely likely that they are looking at Venezuela and their expectations for what and when in Iraq, and they think that 1.5 million bpd is a number that will keep prices at least close to that, if not in the range precisely.
Even furthermore, OPEC is encouraging non-OPEC members to increase their production too, because decreased production in two major producers simultaneously could create a supply shortfall that OPEC could not satisfy alone and keep prices close to the target range. Russia has agreed that it will produce at a level to keep prices “reasonable”,, but I saw a news article yesterday that said that Mexico had no intention of raising output. I can’t find the article now, though.
Why is OPEC doing this, you may ask. Well, they make a lot of money selling oil at these high prices, and by selling more at these prices that are still above their target range they also generate goodwill and good reputation capital, which is sorely needed. Plus, “OPEC members are keen not to let Russia increase its market share at their expense”.