Magazine article The Middle East

OPEC: Some Tough Challenges Ahead

Magazine article The Middle East

OPEC: Some Tough Challenges Ahead

Article excerpt

An American commentator recently asked: 'Why would anyone want to be in OPEC anymore? Why pay the millions in dues and go to those meetings where the decisions don't even matter? Is OPEC even relevant these days?"

The United States is understandably enthusiastic about the massive potential offered by its recent shale discoveries and other possible exploitable energy resources but, in posing his question, the commentator failed to take into account an important point--OPEC does not only serve the interests of its members but also those of non-OPEC oil producers, of which the United States is one.

The fact is that the non-OPEC producers in the US, Russia, Mexico, Norway, the Gulf of Mexico, Texas and even the marginal operators in Oklahoma and Louisiana are skimming huge profits on the back of OPEC, enjoying a free ride aboard the OPEC wagon of high prices. When it suits them they criticise OPEC publicly but what they don't say is that secretly, they support OPEC's policy of controlling production and keeping the prices high, to the hilt. I was tempted to suggest such non-members form their own cartel and call themselves HYPOC (Hypocritical Oil Cartel). Take Russia for example, which is a big non-OPEC producer, in theory it can undermine the OPEC cartel, but it has managed to stay outside the organisation yet enjoying the benefits of its policies to control production and keep the prices high.

Supply & demand

A recent OPEC report World Oil Outlook: "aims to share OPEC's views on the world's energy prospects, and its associated challenges and opportunities." The report, in its seventh edition, "discusses the principal issues that could shape the future of the global energy markets, particularly in relation to oil." Prices, it notes, are expected to remain stable in the long term and although likely to stay in the region of $110 for several years, probably rising to $160 by 2035, which is not unreasonable if we take inflation into account. OPEC expects demand for its oil to average 29.57m barrels per day (b/d) in 2014. Non-OPEC members produced just above 54m b/d last year and this is expected to rise to 56m b/d during 2014.

It is true OPEC's share of global oil output fell from 50% in 1970 to less than 40% in 2010, but its members still hold 80% of the world's known crude reserves.

In the short term OPEC's biggest headache is likely to be the rise in the production of crude oil in the US and Canada.

The need for crude from OPEC, which produces about 40% of the world demand, will fall by 1.1m b/d to 29.2m b/d between 2013 and 2018, the Vienna-based group said in its annual World Oil Outlook. Oil production from shale formations in the US and Canada is anticipated to climb to 4.9 m b/d over the same period.

OPEC still faces problems within its own ranks particularly from Libya, Iraq and Iran. The turmoil in Libya and Iraq has led to falls in production and exports; the sanctions against Iran are still in operation and considerable uncertainty exists in the market at present, mainly due to regional instability and the worsening situation in Syria. At some future stage, experts predict that daily production may be boosted by more than 5m b/d above current levels. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.