OPEC: united or divided?

Published June 4th, 2015 - 09:05 GMT

As OPEC holds its biannual meeting in Vienna on Friday, experts questioned its ability to act as a united cartel.

"OPEC does not function as a cartel," Jeff Colgan, an assistant professor of politics and international relations at the Watson Institute of Brown University in the U.S., told  Anadolu Agency. 

"Its members continue to have quite different interests and are unlikely to cooperate in any meaningful way to cut their collective oil production," he explained. 

The divisions within OPEC became evident after their last biannual meeting on Nov. 27 2014, when they decided, in spite of falling oil prices, not to cut production, but agreed to maintain output at 30 million barrels a day. 

Venezuela and Iran have strongly advocated since then that the cartel should trim production to create upward pressure on falling oil prices. 

Cartel members that are dependent on revenues from oil exports, Angola, Algeria and Nigeria, have said falling oil prices hurt their economies, when they met on March 16 to discuss cooperation aimed at finding solutions.

"A lot of the conversation in Vienna will be generally about the cohesion of the group, given its ability to agree collectively or not," said Richard Mallinson, a geopolitical analyst at London-based energy market consultancy Energy Aspects. 

Saudi Arabia, the United Arab Emirates and Kuwait have said numerous times that they are against any output cut, as they wish to preserve their market share against non-OPEC producers like the U.S. 

The world's biggest crude oil exporter Saudi Arabia's oil minister, Ali al-Naimi, said on Dec. 24, 2014 that his country would not cut production even if oil prices were to fall to $20 per barrel, stating that the glut of oil supply in world markets and low prices are caused by non-OPEC producers.

Oil production outside OPEC

 "OPEC members continue to face hard times because of the low price of oil, which is driven in part because of the horizontal drilling industry, also known as fracking in the U.S.," Colgan said. 

Sijbren de Jong, a strategic analyst at The Hague Centre for Strategic Studies in the Netherlands, agreed: "Saudi Arabia increased its own production in an attempt to preserve market share and price out expensive shale production from the U.S."

"However, the shale industry proved more resilient and U.S. production shows few signs of dying down. This makes life for OPEC difficult as they have to get used to a period of lower oil prices, well below $100," he explained.

De Jong said that Saudi Arabia would indeed lose market share if it cut production. "And worse, it would give a higher price incentive for the U.S. to produce even more."

Since its shale revolution in 2008, crude oil production in the U.S. has risen from 5 million barrels a day on average to 9.5 million barrels of crude per day in March.

According to OPEC's monthly report published on April 16, Saudi Arabia's crude oil production reached 10.3 million barrels a day in March, as Kuwait produced 2.8 million barrels, the UAE had 2.9 million barrels, Iraq produced 3.6 million barrels, while Iran had 2.8 million barrels per day on average. 

By Övünç Kutlu


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