OPEC Lack of Power Now More Obvious

OPEC is dying. President Donald Trump will probably rejoice. But he may not like what takes its place any better.

For a while, in its youth, the group burned so very bright, helping members wrest control over their oil industries and stand up to foreign producers — and their governments. 

But now, according to Bloomberg, like every star, OPEC is about to implode. The world has changed. It is no longer relevant in the way it once was.

Though the group has never had more members in its 58 years of existence, the volume of crude it produces represents just a third of all the oil extracted in the world—the smallest share it has commanded in almost three decades. Not exactly the “monopoly” railed at by the US president.

The group’s ability to influence oil prices by either boosting or cutting output has also waned. Spare capacity available to lift production at short notice has become increasingly concentrated in the hands of a dwindling band of Persian Gulf Arab countries.

The inclusion of Russia in the group’s latest supply management push reflects its waning power. Alone, it was both unwilling and unable to agree to remove sufficient volumes of oil from the market in 2016 to balance supply and demand. But Russia made all the difference.

Now that OPEC needs to boost output, its lack of power becomes even more obvious.

Only a small group of countries—led by Saudi Arabia—have the ability to lift production. For Venezuela and Angola, steep drops in output are involuntary and cannot be reversed. Libya and Nigeria were exempted from OPEC's 2017 output-curbing deal and are already producing as much as they can. Iran’s exports are falling faster than most analysts anticipated, and Trump wants to drive them to zero by early November.

This is a recipe for oil prices to continue to rise. 

Internally, the political and economic differences between OPEC’s founding members now outweigh the common ground that brought them together in 1960. 

Now, far from rallying around a fellow member facing an external threat, two OPEC countries —perhaps Saudi Arabia and the United Arab Emirates—are seeking to damage the group and carry out “anti-Iranian policies” at the behest of the US, according to the nation’s oil minister, Bijan Namdar Zanganeh. 

He may be right, but there is little he can do to stop it. Iran’s oil exports are down by more than a third since April, and are set to fall further this month and next, as buyers flee. Saudi Arabia, meanwhile, has boosted its own production by 420,000 barrels a day over the same period and could test the record levels it reached in 2016 before the end of the year.