OPEC’s Fate Decided By Non-OPEC Members
It seems the OPEC is losing its power in pricing because of rift among its members and role of non-OPEC oil producers; even its decision to cut the oil production has no impact on the market and fate of its decisions on oil price mostly depends on the big powers’ decision.
OPEC meets on Thursday in Vienna, followed by talks with allies such as Russia on Friday. OPEC’s de facto leader, Saudi Arabia, has indicated a need for steep output reductions from January, fearing a glut, but Russia has resisted a large cut.
Saudi Arabia has indicated it wants the Organization of the Petroleum Exporting Countries and its allies to curb output by at least 1.3 million barrels per day, or 1.3 percent of global production.
Riyadh wants Moscow to contribute at least 250,000-300,000 bpd to the cut but Russia insists the amount should be only half of that, OPEC and non-OPEC sources said.
Russia’s TASS news agency quoted an OPEC source as saying OPEC and its allies were discussing the idea of reducing output next year by reverting to production quotas agreed in 2016.
Such a move would mean cutting production by more than 1 million bpd. Saudi Arabia, Russia and the UAE have raised output since June after Trump called for higher production to compensate for lower Iranian exports due to new U.S. sanctions.
But despite this move, the oil price fell further yesterday which can create more concern for oil exporting countries over the price of their commodity.
According to reports, OPEC is waiting for Russia’s decision on cutting its oil production. Russia has agreed to cut its oil production but because of the market and its other rival U.S., the Russians are still undecided and Russian Energy minister has returned to Russia to consult with the Russian President.
If Russia does not join the oil production cut, the OPEC’s decision will be toothless and it will not save the oil market from more plunge of the prices.
Once the main player of the oil market, the OPEC is now under full influence of the two giant oil producers, Russia and the U.S., which seems they have now more to say in the market especially for impacts on the oil price.
And now all eyes are on Russia to show its solidarity with the OPEC, otherwise the plunge in the oil price will continue. Recent chaos in the world stock markets and China’s economic struggle have also helped the OPEC to fail in controlling the oil market.
Despite OPEC decision to cut its oil production, some of its members oppose it and they may stick to their quota because of their economic condition.
Iran has officially reiterated it will not accept any change in its quota in the sanctions era and Libya and Venezuela have the same attitude. Qatar is to leave the oil cartel which is getting toothless because of its members’ passiveness and obedience to the big powers like the U.S.
The unstable economic situation in some OPEC member states have made them hesitate in cutting production because they need more oil sales to help their ailing economies.
Bloomberg reports that Russia only wants to cut output by 150,000 bpd, a rather modest amount, which would mean more heavy lifting by Saudi Arabia to balance the market. Russia appears willing to go along with some sort of reduction, but it also does not feel the same urgency as the Saudis, particularly because of the dynamics of how its currency fluctuates with oil prices, making lower prices much less painful compared to Saudi Arabia.
So the fate of containing the oil price plunge is in hands of Russia which wants to take advantage of recent rift among OPEC members with the U.S. And later all have to wait for the U.S. reaction to the final decision of the OPEC. The U.S. only wants cheap oil market to boost its economy no matter other economies collapse.