LONDON, Dec 20 – Despite months of slashing oil production and announcing new cuts in late November, the influence of the Organisation of the Petroleum Exporting Countries (OPEC) and its ten allies, known as OPEC+, has come under scrutiny as prices continue to flag.
The OPEC+ group is facing mounting pressure on multiple fronts, including rising US crude production, the impending transition away from fossil fuels, and reports of internal discord among its members.
Prices have reached their lowest level in almost six months, despite the cartel’s recent decision to further reduce output. While there has been a slight increase in recent days due to concerns about conflict in the Red Sea and Suez Canal, prices still remain below $80 per barrel.
Analysts believe that the lack of unity among OPEC+ members has contributed to scepticism about the effectiveness of the announced production cuts. Frictions within the group were laid bare during the November ministerial meeting when Angola and Nigeria expressed dissatisfaction with their production quotas, leading to a delay in the meeting.
Founded in 1960, OPEC expanded in 2016 when it partnered with 10 other producers to form OPEC+. However, the group’s enlargement has presented challenges in decision-making. Despite implementing supply cuts of more than five million barrels per day since the end of 2022, the alliance’s strategy has fallen short of reversing the downward trend in prices.
The International Energy Agency (IEA) reported that the OPEC+ share of the oil market has fallen to 51%, the lowest since its creation, while crude production in the United States, the world’s leading producer, has surpassed 20 million barrels per day.
In recent years, OPEC+ has faced growing pressure as more countries call for a transition away from fossil fuels to combat climate change. The green transition poses a significant challenge to OPEC’s business, as it seeks to delay the shift as much as possible.
For countries like Saudi Arabia, sustaining revenue from oil is essential to finance economic diversification programs. While Riyadh has been working on developing alternative revenue sources, the transition cannot happen overnight.
The future of OPEC+ remains uncertain as it grapples with declining influence, internal discord, rising competition, and calls for a transition away from fossil fuels. The challenges facing the group highlight the changing dynamics of the global oil market and the need for adaptability in a rapidly evolving energy landscape.
In the face of these challenges, OPEC+ will need to find unity and navigate a complex geopolitical and economic landscape to maintain its relevance and influence in the global oil market.
