Is OPEC+ losing influence over production and prices?
Al-Monitor Pro Members
President, Competitive Energy Strategies, LLC
Jan. 17, 2023
Russia gave core OPEC+ members Saudi Arabia and the UAEunprecedented control over oil markets when it invaded Ukraine and was embargoed by the West. The United States has shown its discomfort with the leverage these countries have gained; the full results of these shifts in relative power will play out in the medium term. The longer term question is how China and India (the fastest growing consumers) will react to this concentration of market power.
The next five plus years promise higher revenues for OPEC+ members, but the risks are extraordinary given an emerging, more fractured geopolitical environment. OPEC+ is likely to suffer in a deglobalizing world. It is a much more complex task to realize its objectives selling into a partitioned marketplace. Still, there are some positives for core OPEC+; Russia’s invasion of Ukraine in February 2022 was an enormous gift to Saudi Arabia and the UAE, because it allowed them tighter control of OPEC+ without the need to offer anything to Russia in return.
Key characteristics of the medium term are likely to be higher oil prices and volatility. The core members of OPEC+ will generate higher but volatile revenues, with some production increases coming from a very limited number of producers. Overall OPEC+ is unable to significantly increase crude production in response to spiking, higher crude oil prices, including Russia, and so cannot act on behalf of global oil consumers. This version of OPEC+ will be much less useful to the world and will include China and India in due course.
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