The need of OPEC’s existence is getting less evident, because the organization is practically not involved in the regulation of its own production. Such an opinion was expressed in the study by Russian research center Vygon Consulting.
"If OPEC is not able to resolve its internal problems and agree to freeze oil production and other manufacturers cannot help it, the need for the cartel's existence becomes a big question. So, maybe we will see the oil world without OPEC in the near future," – reads the research.
It reminds that until recently only OPEC quotas could regulate the supply volumes. But in late 2014, the organization has stopped to intervene in processes occurring in the market and did not reduce production, more so, according to the results of 2015, it was increased. The experts believe that this unusual behavior of the regulator can be connected with a new paradigm of the investment cycle in the production, which became evident during the shale revolution in the US.
Initially, the main OPEC task was to coordinate the oil policy of its members to secure fair oil prices. The cartel controls 80% of the world’s proven oil reserves, but produces 40% of the world's crude oil. In late 2011, OPEC began to regulate the total production at a certain level of 30 million barrels per day, which remains unchanged today.
Vygon Consulting notes that OPEC abandoned the role of regulator after a sharp fall in oil prices in the autumn of 2014. It increased production of liquid hydrocarbons by almost 1 million barrels a day despite an overabundance of oil. As a result, its production in 2015 exceeded the level set by OPEC by 1.6 million barrels per day. The three official OPEC meetings in November 2014, June and December 2015 failed to reach an agreement to reduce production.
"Until now, there has been no official renunciation of the quota mechanism, because it would mean that OPEC is no longer a cartel," - TASS cited the experts as saying.
Only Saudi Arabia is able to have a positive impact on the market balance. But Riyadh has ceased to adhere to its strategy, planning to increase its market share, the study says.
According to the experts, if the members of the organization will decide to organize another meeting in late April - early May, it would make sense to increase the limit of production set in 2011. The new limit shall be determined taking into account Indonesia’s return to the oil cartel, as well as the global oil demand growth of 32,3-32,5 million barrels per day.
"But the decision to revise the total quota, which is almost equivalent to the 'freezing' of the cartel's production, will be a bombshell: the media will shout that OPEC decided to destroy the market, increasing its quotas, and the price will fall," - the expert conclude.
Sberbank CIB analyst Valery Nesterov, speaking with a correspondent of Vestnik Kavkaza agreed with the basic provisions of Vygon Consulting's report. "Now it is difficult to speak about the future of OPEC, many people believe that OPEC is an obsolete organization. The era when OPEC can regulate oil prices directly is over," he noted.
The expert reminded that the cartel's composition has never been homogeneous. "There were very small oil producers such as Gabon and giants such as Saudi Arabia and Iran in OPEC. They all share a common desire to regulate the market prices," Sberbank CIB analyst said.
"But in fact, only 3-4 countries in the organization could actually make decisions. Over time, it became obvious that Saudi Arabia has the final say. Venezuela's oil production has fallen after Hugo Chavez took office. Iraq has been subjected to military invasion, Iran - to sanctions. Libya was destroyed. Riyadh has acted as a leader of the organization for a long time, while the remaining members rather have deliberative votes. That's how it was before the return of Iran and Iraq. As a result, Saudi Arabia has oil producer, closing the global oil balance: it could reduce production at 100, 200 million tons, it was reduced to 300 million tons of approximately Thus, the excess oil is very. quickly removed from the market, and prices were maintained at the required level," Nesterov said.
The alignment of forces in the world market has changed since the shale revolution. "The production of shale oil has greatly increased since 2009. The US production increased from more than 300 million tons to 480 million tons annually. Now it has fallen to 450 million tonnes," he said.
"When the United States began exporting oil, Saudi Arabia gave priority to retaining its market and didn't reduce its production, so further actions by Riyadh remain questionable," the expert complained.
"We expect that Saudi Arabia will sign an agreement in Doha, but at the same time it is a country which has a large capacity and it will continue to build it up," Nesterov said.
According to the analyst, Saudi Arabia is pursuing its own interests, not the interests of OPEC. "Therefore, OPEC has already ceased to be effective. Even if OPEC and Saudi Arabia cut their output, the United States and Canada will recover production," he said.
The expert stressed that the main challenge now is to ensure stable prices. He added that the cartel is likely to lose influence on the situation in the world oil market.
"The United States strongly reduced purchases of imported crude oil and started to buy it from Latin America and other neighboring countries, as the demand for imported oil in the US has fallen due to the shale revolution," the expert said.
Russia also hopes to increase exports. "We are competitive, we have a well-established infrastructure, contracts with partners have also been signed," Valery Nesterov concluded.
