The ‘conflict’ between OPEC+ grouping and its rivals, led by the International Energy Agency (IEA), seems to be tilting in favour of the former.
This shift necessitates both groups to re-evaluate their strained relationship, a move that could have significance for their mutual interests and the global economy. Dealing with the IEA’s historical sense of superiority is no longer tenable or practical, given the shifting balance of power between the two over the past two decades.
IEA was set up in 1974 with the express intent to stand up against OPEC on prices after the first oil boom.
A testament to the influence of OPEC+ is its expanding reach and enhanced capability to address challenges, particularly those concerning production levels, which are often marked by sensitivity and ongoing tensions. As a case in point, OPEC+ agreed on November 30 to expand its membership to include Brazil starting January, thereby increasing its member count to 24.
Brazil joining OPEC+ marks a significant gain for the group. As South America's largest oil producer, with substantial oil reserves and a capacity of 3 million barrels per day of oil and oil condensate, the inclusion not only boosts OPEC+'s combined production capacity but enhances its ability to influence global production.
Brazil will add more gravitas
The group's share of global oil production is set to rise from 40 per cent to 43. Although Brazil is not an oil exporter and OPEC+'s share of global oil exports will remain at 60 per cent, the new member’s addition into the production quotas is expected to enhance control over supply. The group's share of global oil reserves will soar to over 80 per cent.
Another significant development at the latest meeting was OPEC+'s adept handling of production disputes involving Nigeria, Angola, and Congo, showcasing its flexible conflict resolution capabilities. Coinciding with this was Saudi Arabia's commitment to extend its voluntary reduction of 1 million barrels per day until end March.
Additionally, Russia's voluntary reduction of 500,000 barrels and further cuts by the UAE, Kuwait, Oman, Iraq, Algeria, and Kazakhstan cumulatively bring the voluntary reduction to 3.1 million barrels per day through the first quarter of 2024.
These strategic moves bolster OPEC+'s capacity to maintain stable prices and market equilibrium. The Saudi energy minister said at COP28 in Dubai, "OPEC+ oil production cuts could continue beyond the first quarter if necessary."
These decisions effectively stabilized oil prices above $80 per barrel by the end of last week. It is evident that OPEC+ is resolute in its commitment to maintaining these price levels in the foreseeable future, which aligns with the financial and developmental needs of member countries.
IEA’s soft power moves
It is expected that the competitive dynamics with the IEA will continue, with the latter’s members likely exploring additional measures to decrease oil prices. This may involve leveraging ‘soft power’ through the dissemination of inaccurate info, as previously alluded to by OPEC+.
This rare comment regarding the IEA data had a temporary impact on the markets.
This situation raises two crucial questions. The first is about the feasibility of attempting to reduce prices, considering the strong unity among countries within OPEC+ and their expanding influence, while the second is aboutt he potential for harmony between the two groups.
The era of cheap oil has ended, and OPEC+ members have consistently affirmed their commitment to securing fair prices for their exports and showcasing a collective determination to protect their interests and maintain equitable pricing.
This leads us to the second question, which revolves around the possibility of harmonizing the objectives of these two groups. This requires a realistic approach from IEA, which, despite its global influence, has struggled to lower prices in the past two years. This indicates that its efforts may continue to be met with skepticism and might not yield desired outcomes.
A more effective resolution, beneficial for both and contributing to the stability of the oil markets, would involve reaching a consensus on fair pricing. This should satisfy the developmental needs of oil producing countries without adversely impacting the economies of importing nations.
Achieving this balance necessitates a reassessment of IEA's approach and interactions with OPEC+ - and a step crucial for stabilizing the global economy and alleviating on-going economic crises.