Don't expect oil prices -- and therefore U.S. production -- to go up any time soon.
Saudi Arabia, especially, but also Iran, as the dominant players in the group, are intent upon putting pressure on those areas of the world that they feel threaten their control of world energy markets.
They are especially concerned about the United States and the shale operations that have picked up in recent years. Since it generally costs more to produce oil and gas in the United States than it does in the Middle East, the effort is to challenge the new producers in the U.S and in so doing to maintain market share for OPEC, but particularly Saudi Arabia.
There is no doubt that the strategy is hurting the United States.
"It's another damaging blow to the U.S. oil industry. The rig count will continue to decline, the production decline will accelerate and capital spending plans will be curtailed further, as will employment," said Steven H. Pruett, president and CEO of Elevation Resources, a Texas oil company, quoted in a New York Times article by Clifford Krauss.
Also contributing factors include the oil production of Iraq, which remains quite high, and the drop in the demand for oil from China and other developing countries.
But, this strategy is hurting some of the members, especially those like Venezuela, Nigeria, and Libya.
"Venequela's oil minister was visibly angry The UAR's usually talkative oil head shunned questions on the way to his car. Angola's representative could only muster a blank stare when asked about the outcome," wrote Anjli Raval in the Financial Times, of the OPEC meeting.
But, Saudi Arabia seems to be firmly in control.
The Saudi's want to continue to control the world's supply of oil and gas. It believes that it can do this only by keeping out the higher-cost producers. Hence, it will do what is necessary to control the market. And, it will continue to do so as long as others within the cartel don't break ranks.
Cartels, on average, are not expected to have very long lives. OPEC, the oil cartel, established in September 1960, is an exception to the rule. But today, with oil prices very low, that could change.
The reason cartels do not usually last is that they are formed with one goal in mind, and the founding members stick with the cartel as long as things are going well and everyone agrees upon how they are to proceed to achieve that one goal. When things get a little rough and various members become dissatisfied with how the cartel is going to proceed, perhaps when goals diverge, the organization breaks apart.
For the most part, the past fifty-five years have been pretty good for OPEC and although there have been times when disagreements have arisen, these differences of opinion have been resolved and the cartel has persisted.
One can see how hard consensus might be within such an organization when one looks at the diversity of the membership. The thirteen members of OPEC are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Republic, and Venezuela.
As one can imagine, in times like these when the price of oil has fallen from close to $110 per barrel in the middle of June 2014 to under $40 per barrel in the past week, there are going to be some unhappy campers around. And, that certainly is the case.
But, the Saudis continue to be in control and their strategy is what results from meetings of the members.
However, the recent meeting ended with members not reaching a decision about an output target. This is the first time in quite a few years that such a target has not been produced. Both Saudi Arabia and Iran refused to agree to any production restraint in the near future. Their battle for world market share continues, leading analysts to conclude that oil inventories will continue to grow putting further pressure on oil prices.
One of the crucial issues that went unresolved at the recent meeting was one relating to Iran and the fact that sanctions will be lifted from this nation next year. The world will face an additional supply of oil from Iran next year and there are no signs that the United States or Russia will cut back in the near term.
So, oversupply appears to be a real problem. And the market response to this situation?
"Hedge funds are holding near-record 'short' derivative positions equivalent to almost 360 million barrels of crude that will benefit if prices fall," wrote Neil Hume and David Sheppard in the Financial Times.
Hume and Sheppard continue, "The bets come as many analysts see the oil glut extending well into 2016, as OPEC members try to undermine higher-cost rivals."