OPEC’s recent supply cuts had sent oil prices to a five year high of over $70 dollars per barrel with the American Bank Merrill Lynch projecting prices will probably hit the $100 p/b mark by the three months ending December, 2019.
This was a remarkable feat in terms of its compliance rate of over 80 percent and success at stabilising the oil market and shoring up prices. But OPEC’s influence may be waning.
In December 2016, the 14-nation Organisation of Petroleum Exporting Countries made a Declaration of Cooperation after a joint ministerial meeting with 11 non-OPEC members, including Russia (OPEC+) to initially cut oil supply by 1.80 million barrels a day, in order to suck out glut. This was reduced to 1.20 million barrels of per day in December 2018.
Similarly, in May 2017 another joint Ministerial meeting extended the voluntary production adjustment for another nine months starting July 1, 2017. In November the OPEC+ agreed to keep the production cuts for the entirety of 2018.
However, the plot of the story is changing in 2019; with both OPEC and non-OPEC member countries getting paranoid and reassessing benefits accruing from the Declaration. Russia is reconsidering her commitments to the deal. Nigeria needs to pay more attention at this point too. Three factors currently threaten sustainability of the 58-year-old oil cartel.
First, Donald Trump, president of the United States of America ended oil import waivers May 01, which were granted to some countries to enable them buy crude oil from Iran, despite Washington’s sanction on the OPEC founding member nation. This has sent oil prices to their highest since November. This has not sat so well with Tehran and the oil minister has resurrected questions about possible collapse of the organisation.
“Those who use oil as a weapon against two founding members of OPEC are disturbing the unity of OPEC and creating the death and collapse of OPEC and the responsibility for that with them” Bijan Zanganeh, Iran’s oil minister said on Thursday in response to Trump’s administrations latest sanction moves.
The U.S. has demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, ending six months of waivers that had allowed Iran’s eight biggest customers, most them in Asia, to import limited volumes.
Secondly, bidding wars between Chevron Corp and Occidental Petroleum Corp in the Permian Basin, U.S.A is changing the shale oil landscape – providing shale producers and production with new, larger economies of scale, which will lead to bigger volumes of shale oil flowing into the market and pushing down prices. This move, the OPEC will have little control over.
Occidental Petroleum Corp April 24, offered $38 billion for Anadarko Petroleum Corp, a bid that topped the $33 billion offer by Chevron Corp. As of year-end 2018, Anadarko Petroleum Corp, an independent Exploration and Production company had 1.47 billion barrels-equivalent of proved reserves.
Analysts have said they expect further industry consolidation. Small oil producers revolutionalised the sector through advances in horizontal drilling and fracking, but their stock prices have languished with investors pressing higher returns.
The Permian produces about 4 million barrels per day and is expected to hit 5.4 million bpd by 2023, according to consultancy firm, HIS Markit, more than the total production of any OPEC country other than Saudi Arabia.
A third although remote factor threatening OPEC’s future is the No OPEC (NOOPEC) bill in the U.S.A. The bill seeks to open OPEC to antitrust lawsuits. The legislation would change U.S. antitrust law to revoke the sovereign immunity that has long protected OPEC members from U.S. lawsuits.
President Trump’s administration looks determined to increase oil flow and willing to explore every option. “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement” he said on his Twitter handle, April 26.
OPEC’s share of world crude oil reserves as of 2017 was 1.214 trillion barrels, representing 81.89 percent. Non-OPEC oil reserves hold the remaining 18.11 percent, which is 268.56 billion barrels. Nigeria contributes 3.10 percent to the OPEC basket.
However strong a position the Organisation looks in terms of crude reverses it is past time for Nigeria to start exploring alternative uses for its oil, especially in areas where there are no immediate substitutes for oil such as the petrochemicals. A pathway Saudi Arabia has taken with its recent acquisition of the largest petrochemical company in the Middle-East, SABIC, a global leader in diversified chemicals headquartered in Riyadh