Chris Sutton – Partner, Clover Global Solutions, LP
It’s safe to say that few acronyms have carried as much global economic weight over the past 50 years as OPEC.
When The Organization of Petroleum Exporting Companies – OPEC – was organized in the early 1960’s, its goal was to coordinate and unify petroleum policies among its member countries, specifically to secure fair and stable prices for their petroleum products. However, because the group controls as much as 81% of the world’s crude oil reserves, OPEC has had the power to limit world production, keep prices artificially high, and use its economic clout for political purposes.
In recent years, however, OPEC’s dominance has declined. In December 2013, the cumulative output of its dozen member nations (Saudi Arabia, Iran, Iraq, Kuwait, Venezuela, Libya, Algeria, Nigeria, Ecuador, United Arab Emirates, Qatar, and Angola) reached its lowest point in more than 31 months. Libya accounted for the largest single decline, with production cut by more than half because of strikes and protests.
But beyond the drop caused by political tension, the rise in domestic oil production by the U.S. – historically OPEC’s largest customer – which has reached an estimated 8 million barrels per day and lessened America’s need for imported crude, contributed significantly to OPEC’s falling numbers.
During the first quarter of 2014, however, it appeared that OPEC was staging a complete revival, mostly on the back of growing demand from Asia, India, and Europe. China has massive projects with Saudi Arabia, Iraq, and Iran, and is increasing its imports from both Venezuela and Angola. India has become Nigeria’s biggest customer. And with Europe’s economy in recovery, oil stocks in industrialized countries are at their lowest in five years and ripe for replenishment.
The effect is that in February, for example, OPEC’s output averaged 29.96 million barrels per day, up from 29.79 million barrels per day in January, but still shy of its nominal target of 30 million barrels per day. Shipments from Iraq and Angola rose noticeably, and with energy and economic sanctions against Iran loosened, Iranian exports began to creep up as well.
March told a different tale, though, with Iraqi shipments of Kirkuk crude plunging due to sabotage, oilfield maintenance in Angola, and continued unrest in Libya outweighing additional output from Nigeria, Iran, and top producer Saudi Arabia.
Still, observers suggest that total OPEC output will continue to increase through 2015, even as production from non-OPEC countries, including the U.S., also rises.
Here are some questions for the readers to consider:
- US oil production has been on the rise, and has lessened the need for imported crude oil – what other factors not mentioned here might have contributed to OPEC’s falling numbers?
- Observers believe that OPEC oil production will continue to rise through 2015; do you agree or disagree?
- What effect could Russia’s oil reserves have on OPEC?
Chris Sutton has a sound foundation in the energy sector contracting from both Client and Contractor sides with specific expertise in building alliances to facilitate service capabilities. To contact Chris with any questions or comments, please send an email to Chris.S@clovergs.com.