Has OPEC Reached Its Limits?
Category: Business
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Has OPEC reached its limits or does it have more breath to continue functioning alone as an independent organization without the need for any outside help? Since 2016, OPEC has not been able to function without inviting a very powerful third party to assist it in managing the oil situation, and bringing the oil prices to some acceptable level. Now that the USA shale is taking over as the biggest oil producer with a production rate of 12.4 million, which may increase next year to 13.4 million barrels per day, it could retake its original position as the top world leader.

At the same time, the oil organization itself is losing its volume and market share from its standard 28-30 percent, and losing its production of about 28 million barrels in the absence of oil volumes from its biggest founders Iran and Venezuela. OPEC has been crippled by the absence of its two strongest political members who have volume and influence in the oil markets.

It has to face new challenges related to shale oil and have to live with Russia for years to come. This is because OPEC can no longer manage alone as it is losing volume and has to survive weak oil prices. OPEC now has to face not just the incoming volume of oil from non-OPEC countries, but also have to manage the USA administration’s veto on any level above $70 per barrel, which is threatening its economies, and is faced with more deficits in annual budgets.

Oil countries are thus forced to privatize or sell their assets to global energy companies to generate cash for the oil-hosting countries, with fall in its revenues, which is going to continue for years to come. Now OPEC has found a new partner with which it has to live for years. Keeping oil price at an acceptable level of at least below $40 is the ultimate objective of Russia. And without oil, things will go down the drain along with the states revenues.

The upcoming challenge is how the rest of OPEC will cope with the arrival of combined Iranian and Venezuelan oils into the market, and how much other colleagues must take in terms of the cuts in order to return to the oil markets with handsome volumes, forcing the biggest oil exporter Saudi Arabia to return to its original role of being a swing producer. Despite all the actions, accords and agreements reached between OPEC and its Plus partners, the organization will not survive except through its own members, its politics and its volume distribution. OPEC is in an awkward position, and it must for the time being cling to Russia and stick to its alliance for another nine months until its other two strong members come to life again; perhaps with other ideas and views. Certainly OPEC has not yet reached its limits yet.

14 Jul, 2019 0 89
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