OPEC’s aggressive strategy of flooding world markets with an abundance of oil appears to be meeting its target goals of deflating competition from other producers. Primarily concerned about what was a booming shale oil market, OPEC’s strategy has impacted all oil producers in a multitude of sectors. Success is giving OPEC the incentive to continue to squeeze producers working in the Caspian, Arctic and Brazilian waters, and shale oil is definitely showing the results in America, where it accounts for as much as 45% of total spending cuts. Large companies have announced significant reductions in capital spending and delays in new projects. Total, for instance, is delaying projects in Norway, Italy and Australia by two years, and over that period of time has projected a reduction in expenditure of $3 billion per year — in order to stabilize revenue and ensure dividends are paid. OPEC is willing to pay the price to see its strategy succeed, even if oil prices reach $20 per barrel.
The oil market is not the only troubled spot, commodity prices are also feeling the pinch of more supply than demand. The big names in iron ore—BHP, Vale and Rio, for example, are holding their breath hoping to break even at prices below $20 a ton. They had hoped to turn things around by severely dropping prices, but the result instead has been an over-supply of commodities and collapsed freight shipping rates, which is hurting the shipping industry. Tack onto all of this the somewhat flawed attempt by banks to stimulate market activity by opening up credit, and you have one extremely unstable environment that is not benefiting anyone.
Even the major players are suffering. A good case study is Glencore, who prior to going public in 2011 enjoyed huge success in the mining and trading industry. Its major products are copper and coal, both of which have been less in demand by China as that country tightens its environmental regulations and slows new development projects. Glencore’s stock is 80% below what it was when going public, strengthening the argument that it is better to stay private and ride out the waves of the market’s volatility.