OPEC, marking its 50th anniversary tomorrow, remains a key influence on oil markets with non-OPEC output set to fall and consumers burning fossil fuels despite higher demand for renewable energy.
OPEC was founded on Sept. 14, 1960, in Baghdad by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela as the five oil-producing nations sought to control their crude output in a bid to increase prices and hence their revenues.
Half a century later, OPEC has 12 members, including the original five, and together the dozen produce about 40 percent of the world’s oil. The cartel meanwhile possesses about 60 percent of the world’s proven crude oil reserves.
Above the demographic and political differences separating members such as Algeria, Iran, Nigeria and Venezuela is “a common bond sealing the organization together — the countries’ dependence on revenue from oil,” said analyst Francis Perrin from the publication Petrole et gaz arabes.
OPEC showed off its political might during the 1970s, when by slashing output following the Arab-Israeli conflict and Iranian Revolution, oil prices soared.
However, stiffer competition surfaced a decade later as non-OPEC oil producers came to the fore thanks to ramped-up production in the North Sea. In more recent times, Russia has become an increasingly important producer able to compete with the likes of Norway and OPEC members such as Nigeria and Qatar.
Recently, however, the head of the International Energy Agency (IEA), Nobuo Tanaka, said that global dependency on OPEC for crude oil would in fact rise in the next five to 10 years as output by non-OPEC nations falls.
All oil producers meanwhile face the risk of greater demand for cleaner and renewable biofuels amid climate change fears and recent spikes in the price of crude.
Shaking off the threat, producers and consumers agreed at the International Energy Forum in April that fossil fuels would provide the bulk of the world’s energy needs for “decades” to come.
Barclays Capital analyst Paul Horsnell agreed that talk of OPEC’s demise was “somewhat premature.”
“There is still, in our view, something of an anti-OPEC slant in much coverage, with analysis tending to rush to write off OPEC’s relevance, understate the cohesion of its aims and to play down its effectiveness as an influence,” he said.
“Indeed, throughout the latest economic cycle, it is very difficult to make the case that OPEC has not been effective in defending prices,” Horsnell said.
World oil prices have traded between US$70 and US$80 a barrel for a number of months — a range which OPEC members have deemed adequate. However two years ago the market was vastly different in the run-up to and during the financial crisis.
Geopolitical tensions sent crude futures spiking to record highs above US$147, before the economic crisis sent them tumbling to just US$33 a barrel. The slump in prices saw OPEC members cut their output quotas by about 20 percent — an unprecedented amount in the cartel’s history.
Looking ahead, OPEC could well see a spike in its production as Iraq seeks to lift output to 12 million barrels a day within six years from 2.5 million at present as the country recovers after years of military conflict.
It would make Iraq the second-largest producer in OPEC behind Saudi Arabia.
“It’s a major challenge,” said Jean-Marie Chevalier, an energy market expert at the Dauphine University in Paris, who added that the goal relies on large-scale foreign investment materializing.
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