Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on December 15, 2018

Bookmark and Share

What Would The End Of OPEC Mean?

The Organization of the Petroleum Exporting Countries – the oil market institution that has exerted an unyielding power over the price of crude for nearly 60 years – is now in deep crisis. The latest OPEC meeting in Vienna offered new insights into the cartel’s raging civil war that is tearing it apart and threatens to ultimately make the cartel irrelevant.

In a two-year period since the group of 15 major oil producers formed an alliance with Russia, OPEC’s smaller members have been marginalized, their voices have been diminished and Saudi Arabia seems to prioritize its partnership with Moscow above all else. An unlikely partnership between Saudi Arabia and Russia is causing dissension within OPEC, with one of the oldest members announcing it would withdraw from the organization in January just days prior to the talks. With Russia tightening its grip over OPEC’s decisions and the United States officially reaching net oil exporting status in late November for the first time in decades, even if only briefly, the new world oil order is now dependent on three energy superpowers: Saudi Arabia, Russia and the United States.

OPEC has been under the barrage of external and internal forces since the day of its inception in 1960. Yet, even during the most tumultuous years of the Iran-Iraq war in the 1980s, OPEC still met twice a year and managed to coordinate policy to support the price of crude oil. This was not the case during the pivotal OPEC meeting last week in Vienna, where geopolitics ruthlessly invaded the talks.

After the first day of negotiations OPEC members emerged without a consensus, canceled a press conference and crude prices tumbled. West Texas Intermediate had already suffered a hefty loss of 22% in November, marking the worst month for the U.S. oil benchmark since the financial crisis in 2008. In early Thursday trading, WTI shed an additional 3% in value after Saudi Energy Minister Khalid al-Falih said that a “no deal” outcome is real and that Saudi Arabia would not go for a production cut alone. These comments were quickly followed by a statement from Iranian Oil Minister Bijan Zanganesh that his country under no circumstances would curb output, citing U.S. sanctions. Zanganesh’s comments carried a clear undertone of bitterness over Saudi cooperation with U.S. President Donald Trump’s re-imposition of the sanctions that took effect in early November.

During the second day of the conference, the oil market held its breath, while waiting for the Russian Delegation to come to the negotiating table. Russia – the second largest oil producer in the world has increased its oil production to a post-Soviet high of 11.41 million bpd while Russian oil companies have been investing heavily in their upstream activities and oilfield maintenance.

Russia agreed to a larger-than-expected cut of 230,000 bpd, the lion’s share of the 400,000 bpd reduction in crude production from the non-OPEC contingent. Saudi Arabia would curb output by 250,000 bpd under OPEC’s collective cut of 800,000 bpd according to news reports, with OPEC+ offering no breakdown of country quotas.

Upon conclusion of the OPEC+ talks, WTI futures stabilized, recovering 2.2% of their value on Dec. 7 to $52.61 bbl while Brent recovered by 2.7% to $61.67 bbl. Several analysts said oil futures would have sold off absent an agreement. Russia played a crucial role in bringing Iran into the framework of an agreement while backing temporary exemptions from the cuts for Libya, Nigeria, Iran and Venezuela. After the hard-fought agreement was struck Nigerian oil minister, Emmanuel Ibe Kachikwu was quoted as saying that not having Russia “around the table would be a futile exercise.”

Other OPEC members are not as enthusiastic about Russia’s growing influence over the cartel’s decisions. The nation of Qatar, which joined OPEC in 1961, served notice of withdrawal from the organization days before the meeting in Vienna. Qatar’s oil production has steadily declined and currently represents only 2% of OPEC’s total output or 609,000 bpd. Yet, news that one of the oldest OPEC members is leaving the cartel after almost 60 years is serving as a shot across the bow for the Vienna-headquartered producer group.

Two days of intense negotiations last week revealed intensifying resentment from members of OPEC who feel sidelined by the growing partnership between Saudi Arabia and Russia. As several members chafed against the power shift within the organization, they were prepared to vote against an agreement that would halt the selloff in a commodity critical to their economies, ultimately rendering OPEC and their meeting useless and irrelevant.

Ever since Saudi Arabia and Russia reached an agreement on production cuts in late 2016, the Saudis have insisted that Russia participate in all meetings. The success of this unexpected partnership is a testament to the fact that even geopolitical rivals that have been on opposing sides of almost every conflict affecting the Middle East can become allies when mutually beneficial.

While some analysts predict the biggest test for the Saudi-Russian relationship is yet to come, the two countries enjoy their “marriage made in oil heaven” along with the multi-billion-dollar investment projects following King Salman’s first trip to Moscow. During the G20 International Forum in Buenos Aires, Russian President Vladimir Putin and Saudi Crown Prince Mohammad bin Salman shared laughs and high-fives.

Fading OPEC influence has everything to do with the energy renaissance in the United States. The United States has emerged as one of the world’s top three oil producers, recently overtaking Russia to become the world’s top oil producer, a dramatic turnaround from 10 years ago that has readjusted the world order and shaken OPEC. In late November, the United States was a net oil exporter while shipping a record 3.2 million bpd of crude oil, more than double the volume from a year ago. It was the first time petroleum exports exceeded imports since 1949.

U.S. producers have added a volume equivalent to the entire output of OPEC’s Nigeria in the past twelve months, reaching record high crude production at 11.7 million bpd in November. According to the Energy Information Administration, U.S. crude production could reach 12.05 million bpd in April, six months sooner than forecast in October, and reaching 12.29 million bpd in December 2019. These are the worrying statistics for OPEC, as it loses control in determining world oil prices and market share to producers in the United States. And while Russia has worked with OPEC in the past, Saudi Arabia clearly eyes Russia as an essential partner to guide world oil prices through targeted production cuts.

As the Moscow-Riyadh partnership strengthens and OPEC cohesion frays, the growing power of the United States over the global oil markets was clearly a factor during the negotiations in Vienna last week. The verdict is still out on whether the OPEC+ deal to cut 1.2 million bpd during the first half of 2019 will be enough to offset surging production from the United States and bring the markets into equilibrium.

Even before last week’s meeting and the acrimony leading up to it, OPEC faced an ominous future. News reports surfaced in early November that King Abdullah Petroleum Studies and Research Center, a think tank based in Riyadh, was conducting a study on what it would mean if OPEC dissolved. Kapsarc, headed by former U.S. EIA Administrator Adam Sieminski, are considering what the end of OPEC would mean to world oil markets and to Saudi Arabia’s role in those markets.

By Liubov Georges for Oilprice.com



7 Comments on "What Would The End Of OPEC Mean?"

  1. rockman on Sat, 15th Dec 2018 10:14 am 

    “…The Organization of the Petroleum Exporting Countries – the oil market institution that has exerted an unyielding power over the price of crude for nearly 60 years…” Yes indeed, “unyielding power”: In less then a decade OPEC forced oil prices down from the record high of $146/bbl to less then $30/bbl. And recently put a stop to increasing WTI prices forcing them back down to the level now only seen more then just 2 years ago but also seen 14 years ago in 2004. Now that’s real power over the market place. LMFAO!

  2. Cloggie on Sat, 15th Dec 2018 10:22 am 

    The oil industry is a dying industry, where everybody in a fire sale tries to get rid of their sludge, in order to prevent being stuck with stranded assets, once climate change and accompanying regulation really will begin to bite and renewable alternatives begin to accelerate.

    OPEC will soon resemble 19th century coal mining lobby groups: never to be heard of again.

  3. Davy on Sat, 15th Dec 2018 10:42 am 

    “The oil industry is a dying industry” well yea, the planet and civilization are dying and renewables will die with them.

  4. GetAVasectomyDudeLifeSuckAdd on Sat, 15th Dec 2018 11:07 am 

    https://www.zerohedge.com/news/2018-12-15/paris-protests-turn-violent-again-police-use-riot-measures-yellow-vests

    This is a couple picture on Zero of Young women dress in red in front of the police.

    Red is the color of blood. If could represent the blood of Macron. It almost look mystical as something you will see in medieval time. It look like women are announcing blood is coming.

    Women are the guardians of the human specie because they are one giving birth. They role is to assure the human will never go extinct. They operate at a much more animal level then man and are guided by a different instinct them man. It is almost like if women are saying to for blood young man.

    This are my observation,

    https://www.youtube.com/watch?v=MjUqfRrWwcM

  5. Outcast_Searcher on Sat, 15th Dec 2018 12:52 pm 

    GetaVas: You need a translator, if you can’t do better than your first and last sentences.

  6. Outcast_Searcher on Sat, 15th Dec 2018 12:55 pm 

    Right, Rock. Over the long haul, supply and demand rules the market. Clearly the additional supplies re oil and gas fracking (despite all the denial of the doomers) is having the biggest impact on prices, over time.

    OPEC has had some power when supplies are tight, and tends to cheat around the edges when they’re not, so their “control” on prices is only marginal, and rather unpredictable.

  7. GetAVasectomyDudeLifeSuckAdd on Sat, 15th Dec 2018 4:24 pm 

    https://www.youtube.com/watch?v=XgAnqG5mGVs

    red = blood naked
    tits= nourishment (breast = milk for baby) Mariannes = freedom

    Their message is nourish freedom with blood.

Leave a Reply

Your email address will not be published. Required fields are marked *