Is OPEC winning the high-stakes battle over oil prices?

February 9, 2015, 6:35 PM UTC
High Oil Prices Continue To Drive Gas Prices Steadily Upwards
CULVER CITY, CA - APRIL 25: Oil rigs extract petroleum as the price of crude oil rises to nearly $120 per barrel, prompting oil companies to reopen numerous wells across the nation that were considered tapped out and unprofitable decades ago when oil sold for one-fifth the price or less, on April 25, 2008 in the Los Angeles area community of Culver City, California. Many of the old unprofitable wells, known as "stripper wells", are located in urban areas where home owners are often outraged by the noise, smell, and possible environmental hazards associated with living so close to renewed oil drilling. Since homeowners usually do not own the mineral rights under their land, oil firms can drill at an angle to go under homes regardless of the desires of residents. Using expensive new technology and drilling techniques, California producers have reversed a long decline of about 5 percent annually with an increased crude flow of about 2 1/2 million barrels in 2007 for the first time in years. (Photo by David McNew/Getty Images)
Photograph by David McNew—Getty Images

Is OPEC’s strategy of letting oil prices slip to hurt its rivals working?

In its monthly report on the market, the Organization of the Petroleum Exporting Countries said Monday that demand for a barrel of its crude oil is slated to rise.

OPEC no longer predicts demand for oil will decline by 300,000 barrels a day, according to The Wall Street Journal. Instead, the group says demand will be 29.2 million barrels per day, up about 100,000 barrels a day compared with last year.

The organization is also reporting that the U.S. oil supply will increase at a slower rate than previously forecasted: 130,000 fewer barrels per day than was originally expected for 2015. Meanwhile, oil consumption in the U.S. is slated to jump 1.17 million barrels a day to 92.32 million in total.

The price of oil has more than halved over the past six months, falling below $60 a barrel, and U.S. gas prices have fallen to their lowest levels in a decade.

In response to price declines, OPEC has usually cut production to prop up prices, the Journal notes. But last November OPEC, led by Saudi Arabia, decided not to cut output — a move seen as intended to inflict economic damage on producers of oil in the U.S., where production has been rising, the newspaper said.

The price of oil has indeed recovered somewhat in recent days following its six-month slide. U.S. crude futures rose for a third straight session up $1.17, or 2.3 percent, to $52.86 on Monday. During the day, it reached a session high of $53.99, according to Reuters.

Lower oil prices have led to greater demand from U.S. motorists, OPEC said in its report, noting that the lower price for a gallon of gas means motorists are getting on the road more often, and that’s driving up the price of oil: “Gasoline, in particular, remains a key driver behind the growth in U.S. oil demand, largely a result of lower oil prices,” OPEC said.
[fortune-brightcove videoid=4007762614001]

However, the recent recovery in the price of oil may be little more than a pause before another decline, according to a Citigroup (C) report issued Monday and reported by Bloomberg.

The price of oil could soon drop to $20 a barrel, the report said, noting that oil production in the U.S. is still rising. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran are trying to maintain their market share by cutting prices to Asia, the report added.