OPEC 'Artificial' Pricing Model Less Effective Than Market Dynamics

© AP Photo / Hasan JamaliOil production.
Oil production. - Sputnik International
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The Organization of the Petroleum Exporting Countries’ (OPEC) model for artificially driving costs has become less effective than free market principles in setting oil prices, former US Assistant Secretary of Energy Chuck McConnell told Sputnik.

The press conference room of the OPEC (Organization of the Petroleum Exporting Countries) is seen at the organization's headquarter on the eve of the 164th OPEC meeting in Vienna, Austria on December 3, 2013 - Sputnik International
Current Oil Market Turbulence Due to OPEC Managing Price
WASHINGTON (Sputnik) – "What is more and more apparent is that the former construct of OPEC and the way in which OPEC formally performed and acted in the world markets is essentially, in my mind, over. It’s not going to act anywhere near as impactfully as before," McConnell said.

McConnell’s comments come amid the proposal to freeze oil production by Russia, OPEC and some non-OPEC countries to raise the current low oil prices.

"I think there are a lot of things that are changing in all parts of the world that we live in, and I think that markets and access to capital are much more strongly going to drive oil prices than any consideration of a freeze or restriction on supply. I think those artificial situations are not likely to be anywhere near as impactful as we remember them to be from days gone by," he stated.

The former energy official claimed that one of the reasons for this change is a "fundamental" mistrust among many Middle Eastern countries on politics far beyond oil production, especially when it comes to Iran and Saudi Arabia.

"You have two players in the market such as Iran that really have no fundamental connection to anything that had previously gone on, and so that’s a wild card," McConnell explained. "I think the Saudis have decided that no longer are they going to subsidize higher cost oil than anywhere else in the world by cutting their own market share. They are not going to do that."

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OPEC Members, Other Oil Producers to Discuss Oil Freezes in March
Global oil prices dropped from $115 to less than $30 per barrel between June 2014 and January 2016, hitting their lowest levels since 2003.

Earlier in February, Saudi Arabia, Russia, Qatar and Venezuela signed the so-called Doha deal to freeze output at January levels throughout 2016. Doha participants have urged all oil producers, both members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC states, to join the deal.

So far, the agreement has been endorsed by Iran, Ecuador, Algeria, Nigeria and non-OPEC member Oman.

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