OPEC’s Role During Changing Times
This is a crucial and peculiar moment in the history of the Organization of the Petroleum Exporting Countries (OPEC). The Coronavirus pandemic has resulted in all-time low crude demand and prices; OPEC members have internal conflicts; there is a strong opinion worldwide in favor of cleaner fuels. In short, OPEC faces daunting challenges ahead.
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental organization founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela during the Baghdad Conference on September 10-14, 1960. Currently, it has 13 members, including nations from Africa and Latin America. It is headquartered in Vienna, Austria.
OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic, and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.
To the degree that it is now, its ability to drive the oil market in its favor has never been doubted. In order to determine the state of supply and demand in the marketplace, the Vienna-based institution holds regular meetings, and its pronouncements have a significant weight as far as the oil market is concerned.
However, this power to influence has declined in recent years, leading it to join forces with ten non-OPEC producers to curb their collective production, including Russia. In essence, OPEC+ decided to fight rising shale rock energy supplies in the United States and help prevent a persistent supply on world markets. Today, about one-third of global oil is pumped by OPEC, but OPEC+ accounts for nearly 50 percent, thus gaining a clear advantage.
Compared with the past, OPEC is somewhat less dominant, also partly due to non-OPEC countries’ development and modern extraction techniques. The cartel, however, maintains a relevant role, even today, in the context of the global oil market.
The price war and the COVID-19 pandemic led to a steep decline in oil prices and also caused the light sweet crude contract in New York to turn briefly negative in April. This suggested that producers paid buyers to purchase oil from them.
OPEC+ cut up to a fifth of its production in May after the historic market crash, a move that sparked a sharp turnaround in oil prices. Seeing these developments, the United States (now the world’s biggest oil producer) curbed the speed of expensive shale extraction.
In recent years, OPEC has lost market share. Owing to the fact that it currently has the largest amount of accessible oil in the world, the cartel still has a significant role to play. Given the dynamic nature of the global oil market, it is expected that in the future, OPEC would become more and more relevant.