OPEC’s 14 members control 35% of global oil supplies and 82% of proven reserves. With the addition of the 10 Non-OPEC nations, notably Russia, Mexico and Kazakhstan, those shares increase to 55% and 90% respectively giving OPEC+ an unprecedented level of influence over the world economy.
In the constantly evolving world of oil markets, a new term has been coined – OPEC+. The OPEC (Organisation of Petroleum Exporting Countries) nations and the ten additional oil-producing economies including Russia, Mexico and Kazakhstan make up the OPEC+. The 14 members associated with OPEC control roughly 35% of the global oil supplies and also control 82% of proven reserves. With the addition of 10 affluent members in the oil industry, these shares could increase to a whopping 55% and 90% respectively. In retrospect, this provides the OPEC+ members with a massive level of influence over the global oil markets and as a result the global economy. During late-June 2018, you may recall that OPEC and the new allies emerged with an agreement to increase the output of crude output by one million barrels per day to achieve ‘market stability’. In hindsight, the agreement sparked the latest successful policy efforts by the 24 member super cartel. The media had a field day thereafter referring to the informal group as ‘Vienna Group’ or the much-fancied term ‘OPEC+’.
When we mention OPEC, all eyes are set on the main player Saudi Arabia but when one mentions OPEC+, the focus turns to Russia. In December 2018, the super cartel announced 1.2 million barrels per day cut effective from January 2019 and running through till June 2019. However, that decision was supposed to be reassessed four months later in April 2019. According to the latest news reports, at one of the meetings in Azerbaijan on March 18, the April meeting was cancelled. Market analysts have opined that the decision on whether to extend or discontinue the cut will be delayed until just before the expiry dates.
The cancellation of the meeting is unusual since reports had Saudi Arabian officials saying OPEC’s job in rebalancing the oil markets was far from over. The Saudis also mentioned the details of the severe sanctions placed by the USA on Iran and Venezuela. Despite the supply disturbances, OPEC+ will need to increase the output cuts well into the second half of 2019.
OPEC has long been the organisation with the largest influence on the oil markets but questions are arising whether OPEC can still influence the global oil markets or not. Market pundits are putting out the fire with the notion that OPEC is still the major impact player but time is suggesting that they cannot do it alone and the Saudi’s seem to realise this. In recent times, OPEC officials have remarked that the ‘fundamentals are unlikely to materially change in the next few months’ but also duly noted that there are ‘critical uncertainties’ in the market.
As per the EIA, US production fell in January by 90,000 bpd. This signifies that the shale industry has not yet recovered, in terms of capital, from the collapse in price in late 2018. The wait and watch approach of Russia is making some sense given that prices have not increased as fast or as much as the super cartel would hope. On its part, the US is also not getting into the way with increased production at the moment. The blame has to be on the slowing demand. The global economic data has taken a lower turn as have global yields so the cartel are cutting supply but the global demand is falling with it i.e. they are selling less oil at only marginally higher prices.
In light of the above statements, the request from Alexander Novak, the Russian Energy Minister, to postpone the April Meeting makes sense. The minister has said in interviews that the economic crisis in Venezuela and the loss of oil production along with Iran could be adequate to keep prices stable while they wait for the demand to recover.
On the other hand, Khalid Al-Falih, the Saudi Energy Minister, does not agree as proven by the Saudi comments in reference to increased US production. Saudi Arabia will continue to cut deeper than required under the deal through to the end of April, the Saudi Energy Minister added.
While the co-operation within OPEC+ is all but guaranteed, there are some disagreements within the super cartel which have emerged in the recent days. It seems at this point, market analysts will not know if those cracks have been amended or widened until the next meeting of OPEC+ in June. The demand from the summer driving season is just around the corner and the cuts will expire on June 30. With all the factors in motion, a volatility spike may develop as we approach the most important meeting for the oil markets in 2019.