Although they were able agree on a production cut, the last meeting in Vienna is a clear writing on the wall that the Organization of Petroleum Exporting Countries (OPEC) can’t unilaterally dominate the energy markets as it had done for the last five decades.
When Saudi Energy Minister Khalid al-Falih leaves Vienna on Friday, he may be beset by other bigger worries than the current oil price crisis.
The first is that Russia, rather than Riyadh, has become more powerful in OPEC without even being a member; the other is that the United States oil exports were hitting record highs last week.
OPEC members with help from Russia reached a preliminary deal to cut oil production and boost the market, following two days of gruelling negotiations, although Iran was able to secure an exemption from cuts as a result of U.S sanctions.
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Feyi Akinsanya an oil expert at Szotyola Energy Services said the last OPEC meeting showed clearly that politics has more influence on the members other than the discipline to their membership.
“The OPEC structure is such that everyone gets to have an equal vote. But the Russians get to have a super vote and virtual veto power,” Femi Akinbobola an energy analyst at Sofidam Capital limited said.
Akinbobola explained that while US shale output is predominantly light, sweet crude, there are also other middle barrel, medium grades coming out from around the country that compete more with the type of oil that the Saudis mainly export which will further reduce their influence on global market.
Emmanuel Afimia energy analyst at Afimia consulting said the only time OPEC will lose grip completely is when the alliance with Russia and other non OPEC members who are parties to the output cut falls apart.
OPEC’s waning influence can also be seen from the fact that even if it manages to cut production, others like the US might just step up theirs. Last month, the US emerged as the world’s largest crude oil producer as it became a net exporter for the first time in its history.
OPEC itself acknowledged this implicitly in its November report, when it said that demand for crude from OPEC members is forecast to decline by 1.1 million barrels a day in 2019.
For OPEC the world is a different place from the heady days of 1973 as Qatar’s exit, and the inflexibility of Russia a non-member on whom it is heavily reliant to enforce production cuts to prop up prices are clear signs of its diminishing importance.
In its hey days of 1973, the cartel proclaimed an oil embargo which shot up oil prices four times within a year in retaliation to the perceived support of some countries to Israel in the Yom Kippur war. OPEC could get away with it then because it accounted for around half of the world’s oil output.
Predictably, the rest of the world learnt a lesson and decided to search for new and alternative sources of fuel, and cut down on fuel consumption. Today, OPEC contributes to about a third of the world’s oil output. Meanwhile projections of oil demand reaching 113 million barrels a day by 2025 which OPEC had predicted in 2005 are unlikely to materialize anytime soon.
Near-term demand is also not looking good, despite talks of a US-China trade war truce, amidst weakening global demand. In its November monthly report, OPEC itself projected world oil demand to grow by 1.29 million barrels a day in 2019, around 70,000 barrels a day lower than its previous forecast. In such a scenario, the cartel has no other option but to cut production in order to support prices.
Brent crude currently trades at $59.78 a barrel, about 45 percent lower than two months earlier.
What does this mean for Nigeria?
Nigeria’s Minister of State, Petroleum Resources Ibe Kachikwu told Bloomberg that Nigeria’s cuts under OPEC’s just announced deal will be about 40,000 barrels a day.
According to November OPEC monthly report, Nigeria’s oil production stood at 1.75 mbd.
OPEC committed to 800,000 barrels per day (bpd) in output cuts in total, and 10 non-OPEC producers led by Russia will slash another 400,000 bpd for six months beginning January, under a preliminary deal reached Friday after two days of intense negotiations.
Russia could cut its oil production by 200,000 bpd as part of a deal with OPEC to reduce oil supply—a higher commitment than 150,000 bpd previously aired, a person at Russia’s energy ministry said on Friday.
