OPEC's choice for long-term was right: former Sec-Gen

OPEC’s recent decision not to cut production makes sense for the long term, former OPEC Secretary General said Friday while dismissing claims that the oil cartel has lost influence over the global market.

Speaking to The Anadolu Agency on the sidelines of the fifth Bosphorus Summit in Istanbul, Adnan Shihab Eldin said if OPEC had chosen to cut production to defend prices, it would have financed more investment in higher-cost oil outside the organization. He said that it would in turn force OPEC to cut production many times over and lose market share in the process.

"I think on purely economic grounds, the decision of OPEC makes sense," he said, adding that the market will witness some shake up to get rid of extra supplies.

"Those producers who bet on oil staying at $100 and made their decision based on that have to face the consequences if the market does not allow for that, and currently, the market does not because the marginal cost is $80," Eldin said.

Oil prices have tumbled from above $100 in June and are now close to $65. According to Eldin, the market is overreacting and expects prices to hit as low as $50 in spring when demand usually weakens.

In response to whether OPEC would take action when demand eases, Eldin said that OPEC will make decisions for the best interest of the long term. He said that they will not try to do a balancing act based on today for the short-term to maximize their profits, but rather they will cut production when it is necessary, and when there is no one else to do so.

Commenting on the different views inside OPEC, with some countries calling for production cuts to prop up prices, Eldin said, "Some members may be more interested in the short term. Those countries that assumed the price of oil would stay at $100 were misinformed because the marginal cost was not at that level for the last few years, everybody knew that." 

He dismissed claims that OPEC has lost its influence and commented, "You always see a crisis and then they say OPEC has lost control. As long as there is an oil market, as long as we have low cost oil coming mostly from OPEC and as long as demand for oil continues to grow, there will be a need for somebody to take the leadership in balancing the oil market and currently it is OPEC. If there was no OPEC, probably somebody would invent it," he said.