OPEC Current Concerns
The Organization of Petroleum Exporting Countries (OPEC) still control roughly 40 percent of the international crude oil market. However, it has shown indications of wearing out lately. The cartel’s member-nations have already surpassed the daily production limit of 30 million barrels per day by more or less 886,000 barrels since January of 2012.
During its meeting in Vienna, the OPEC leadership under Saudi Arabia decided to maintain its aggregate output. Some members disagree with this policy. OPEC’s demand projection remains to be the lowest during the last 12 years and over one million barrels daily below its existing production goal. In fact, prices are lower than what members require to maintain their budgets except for Qatar and Kuwait. Investment strategists and industry analysts believe the group is encountering a difficult time in maintaining the organization.
Shale Boom and World Demand
What are the current concerns that confront OPEC?
Stakeholders perceive the decision of Saudi Arabia to allow global market prices to plummet as a challenge to producers of more expensive shale in the United States. Meanwhile, decreasing demand arising from sluggish economic growth in Asia and the Euro Zone helped drive crude oil to what is known as a bear market. However, stakeholders believe these low prices can turn fortunes around and fire up markets.
Geopolitical instability is something that OPEC has to reckon with. Geopolitical hazard is absolutely among the disadvantages of low prices of crude oil. One matter for consideration is renewed hostilities in the Ukraine. Another is the situation in the Middle East especially in Iraq. It is very obvious that the price of $US60 per barrel will cause more anxiety to already unsteady nations. The output of Iraq is near a 13-year peak as the government forged an agreement with the semi- independent Kurdish region to sell more crude as it wages war against Islamic State rebels.
In case Iran agrees to keep in check its nuclear program in exchange for reprieve from sanctions imposed by Western powers, it aims to double production to 4.8 million barrels per day. On the other hand, combined restrictions from the US and Europe over Crimea have produced a currency crisis, downturn and inflation in Russia.
Stakeholders in the oil and gas industries of Nigeria have already questioned the weight of its membership in OPEC. Many sectors have already urged the chief executive (Goodluck Jonathan) to abandon the cartel. These people claim that OPEC only benefits Saudi Arabia and its allies in the Gulf because of the egotistical craving to preserve market share worldwide. It has contributed to plunging prices of the black gold.
Nigeria sees that the Saudi Arabia-led bloc is only concerned regarding competition with the United States due to shale and not the predicament of poorer non-Arab members are affected most by sharp declines in oil prices. For more than five decades, the African country has always been exposed to risks linked to the fast, erratic and sizeable changes in prices. There are no easing measures except for its membership. All these have been in position notwithstanding the country’s single economy.
OPEC did not arbitrate in November of 2014 as it did previously in 1998 and 2008 to hold back the fall of prices by maintaining the supply equation notwithstanding apparent oil glut generated by an additional five million barrels from US shale products.
At present, Venezuela struggles with price rises, shortage of prime commodities and capital flight. It is confronted with escalating borrowing costs as investors are weighing the possibility of default. The threatening scenario compounded by the unyielding sell-off of prices forced Venezuelan President Nicholas Maduro to the Middle East for discussion with OPEC members Saudi Arabia and Iran. President Maduro has his hands full to keep the country's finances buoyant which were further demolished oil prices. Venezuela is debt-ridden and confronted with prevalent problems. Thus, it looks like that the only option left is to default on the nation’s obligations before 2015 ends. With this financial quandary growing more uncertain as each day passes, the Venezuelan chief executive has no alternative left but to look for aid from overseas.
President Maduro visited Beijing since China has been the biggest financial supporter of Venezuela. China has already given over $50 billion in terms of loans since 2007 with approximately $20 billion of this amount still outstanding. Said loans are propped up by oil so ½ of Venezuela’s oil tankers go to China daily to service its debt. As a matter of fact, China has agreed to pour another $20 billion of investments within the next 10 years for an assortment of energy, industrial and social projects. Even then, this is not the only solution to the country's monetary problems because it is in dire need of higher crude oil prices to earn revenues that will keep Venezuela alive.
These concerns of OPEC are things that should affect the oil industry and world markets for the next five years or so.