The Oil Powerhouses Replacing OPEC

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Three countries currently account for close to 40 percent of global crude oil production and only one of these countries is a member of the Organization of Petroleum Exporting Countries. The three are Russia, the United States, and Saudi Arabia and as their clout over oil markets increases with rising production rates, OPEC’s is set to decline, at least temporarily.

Each of the three producers has its own oil production policy that is relatively independent of other producers’. True, Saudi Arabia and Russia have been playing on the same team for the last two years to a large extent because the game strategy has been mutually beneficial. Yet we have seen abundant indications that the moment the interests of the two begin to diverge each is likely to drop the team game and pursue its own priorities. The U.S. in the meantime has become the single largest swing factor outside the OPEC+ club with relentlessly rising production that could push it to the top spot globally next year.

This production will only continue to rise if OPEC now decides to start cutting production once again in order to push prices higher, further strengthening the U.S.’ importance on the global oil market. So, does this all mean OPEC is as good as dead? For the time being, mostly yes. Most of its members, as Kemp notes, fall in one or more of the following categories: “is struggling under sanctions, mismanagement and unrest; is too small to matter; is maximizing production rather than participating in output controls; or simply aligns its output policies with those of Saudi Arabia.”

The future remains uncertain, however. Most respectable forecasters such as the Energy Information Administration and the International Energy Agency are upbeat about the growth of oil demand, but the upbeat forecasts come with conditions: the IEA most recently said in its World Energy Outlook that producers will need to up investments in new conventional production substantially to be ale to respond to this demand. Failing that, the U.S. would have to increase its shale oil production by as much as 10 million bpd in the seven years to 2025, which is a bold target, to say the least.

Full article: The Oil Powerhouses Replacing OPEC (OilPrice)

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