By Melissa Cox
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OPEC (Organization of the Petroleum Exporting Countries) is an intergovernmental organization created at the 1960 Baghdad Conference by five countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC was created by these nations to, ‘co-ordinate and unify petroleum policies among member countries to secure fair and stable prices for petroleum producers.’
The current members of OPEC in 2020 are Algeria, Angola, Equational Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of Congo, Saudi Arabia, UAE, and Venezuela. OPEC+, established in 2016, consists of the original OPEC nations, and 10 major oil-exporting countries, including Russia.
OPEC has major influence over crude oil trade and prices worldwide, due to the member countries making up around 44 per cent of all global oil production, and 81.5 per cent of the worlds proven oil reserves. OPEC+ gave the organisation even more of a stronghold over the industry by involving the remaining leading nations in oil production. However, earlier this year the start of the oil price war between Saudi Arabia and Russia in the middle of the coronavirus pandemic has resulted in heavy damage done to the oil industry that could be unreversible in the years to come.
OPEC+ was brought together for several reasons, but the US’s growing involvement in Shale oil extraction technology resulting in lowering prices of oil from over USD 100 in 2014, to below USD 30 in 2016, called for more attention to price control. Earlier this year in January, OPEC+ agreed to cut oil production by 2.1 million barrels per day, which is about 2 per cent of global production.
By March 2020, Russia refused to cut production by the 1.5 per cent that was requested, despite OPEC’s protests that a cut was necessary to maintain a steady oil price. By March 8th Saudi Arabia announced a 10 per cent discount for all customers to try and direct Russia into an agreement. However, the results were not what was expected.
After Saudi Arabia announced its price cuts, oil prices fell worldwide. Brent Index (European Crude) fell by 30 per cent and West Texas Index (U.S. Domestic crude) fell by 20%. On March 10th Saudi Arabia decided to take an opposite route, by announcing a 25 per cent increase in oil production. This resulted in even further price drops on a global scale due to these Saudi-Russia tensions as well as the impact of COVID restrictions lowering the oil demand globally, as there was a drastic decrease in the number of flights taken, and cars on the road.
In April, oil prices continued to drop due to a lack of oil demand paired with an excess amount of production. In early April, efforts were made on a global scale to reach an agreement with Russia to convince them to decrease oil production. By April 10th, Russia agreed to a reduction of 9.7 million barrels per day between all 23 OPEC+ nations, reducing global supply by almost 10 per cent.
Despite this, oil prices still entered the negatives in April due to an excess in crude petroleum, and firms were having to pay people to take away all the excess, as there simply was no one who needed to buy it. Toward the end of this year, there has been more positive news for the crude oil industry. Brent crude rose to its highest price in 8 months, $49.25USD per barrel, following news regarding the distribution of the COVID-19 vaccine.
Another factor was the announcement that OPEC+, including Russia, were to increase daily oil production by 500,000 barrels per day from January 2021. This number is a significant fall from the 2 million barrels per day that was originally agreed upon, but it is still positive news, and the number could still rise at any time. However, the oil market is still predicted to be unstable for the foreseeable future, due to the ongoing effects of COVID-19 that are unlikely to allow room for total recovery for a while.
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