OPEC – A SHADOW OF ITS FORMER SELF

about 9 days ago
No Image

 

Even till a couple of years ago, an OPEC meet in Vienna meant crude prices would oscillate wildly and speculation would rule the rooster, sending oil prices into a tizzy.

This time around, the buzz is there but it’s not strong enough to have any impact on the crude oil price. The OPEC meet ended and the international brent crude oil futures fell below $60 per barrel early in the session, trading at $59.50 per barrel.

The all-important OPEC meet ended without an announcement of a decision to cut crude supply. Today, the members will be debating over the production cut, that’s all.

Does this mean that OPEC is today just a toothless tiger, a mere shadow of its past?  Is OPEC losing its influence over the oil market?

The dynamics for OPEC have most certainly changed from where it stood in the 2970s where it could dictate the oil prices, holding the world to ransom. But that was a lesson which many countries learnt and decided to stop this dependency on the gulf countries for oil.

Thus from a time when OPEC took care of over 50% of the oil needs of the world, it now accounts for a little less than 40% of the world’s oil production. USA is a force to reckon with its own oil production; for the first time in history, it exported oil last month. Then there is shale gas, which in fact changed it all for the almost monopolistic OPEC. Today, oil simply cannot cross a particular threshold as immediately shale gas steps into action.

The world too has found other alternatives to cut curtail its dependency on oil; natural gas has been a huge game changer. Solar is also catching up in a big way.

And then there is the politics which surrounds OPEC. There was a time when Saudi just decided and cut production and oil prices soared. Today it cannot do so; it simply cannot afford to antagonize the USA. Also what the non-OPEC member, Russia says has become pretty significant.

Qatar deciding to quit the OPEC from 1st Jan 2019 might not have had any impact on the crude oil price but psychologically it’s a big blow. Its contribution to oil is not significant but its decision to quit is more political – a fitting answer to the embargo with Saudi, UAE; it’s been a year since the embargo and the tiny nation continues to do well and its isolation has brought it closer to Iran. Saudi and Iran are staunch enemies and Qatar’s proximity and quitting from OPEC is this being viewed more as a political move.

OPEC, if it manages to convince Russia might cut production but the question is whether that will send the crude price into a tizzy? In that eventuality, USA might step up production and Iran continues to supply to India, China and Japan.

OPEC cannot be written off yet but the truth is that it is no longer in-charge of the global oil price movement; that monopoly is over.

Opec does still matter, but it is far from being fully in charge of the global oil market. And if the world continues to work towards finding alternates to oil, maybe one day, OPEC will remain a relic of the past.

Popular Comments