OPEC, the Organization of Petroleum Exporting Countries, was founded in 1960 with five countries, expanding over time to include 15 of the world’s largest oil producers as official members. These control 35% of the world’s oil production and hold 82% of the world’s proven reserves: Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.
In 2016, the group broadened its collaboration to bring in other non-OPEC oil-producing economic partners. Known as the “Vienna Group”, “Super OPEC”, or “OPEC+”, the additional participants bring the total membership to 24, a club that controls 55% of world oil production: Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan.
The International Energy Agency is predicting a 1.2 million barrel per day surplus of oil during the first half of 2020. This overproduction is of tremendous concern to OPEC+ members as many of them need an international price of $60 per barrel to produce profitably and to deliver sufficient revenue to meet their countries’ financial needs.
Now, OPEC+ members may take a step that is highly unusual, cutting oil production preemptively to head off the glut before it materializes, a departure from their past production cuts which are generally agreed to only after a glut materializes. When they convene in December, they may take action to adjust their aggregate production, but can they make a difference?
Foreign producers, and American shale drillers, need a higher price to generate the financial returns they prefer, but times have changed dramatically since the 1970s when OPEC could dictate the market price.
First, American shale producers are able to ramp production quickly to mute some upward price pressure, this role as a “swing producer” will exists until some of today’s producers are priced out of the market. Second, President Donald Trump has made low oil prices a hallmark of his economic plan and sees them as key to keeping consumers happy, and to delivering energy to an economy he’s trying to revive.
He’s asked the Saudis to keep prices low in the past, and with an election year in 2020 he wants the economy cranking. His role in the conversation is yet to be determined.
https://www.worldoil.com/news/2019/10/18/opec-may-roll-out-new-price-control-technique-in-december
https://www.forbes.com/sites/arielcohen/2018/06/29/opec-is-dead-long-live-opec/amp/