With Brent crude prices at a four-year low, is Opec’s power over the oil market waning?
Ole Hansen, head of commodity strategy at Saxo Bank, says Yes.
Opec’s control over global oil prices is waning because supply growth increasingly comes from non-Opec producers.
An example is the US, where production has risen to the highest level in 28 years – largely due to the shale revolution, which has added almost 4m barrels per day since 2010.
This has increased competition in the global oil market, with former exporters to the US now having to compete for market share in other regions – most noticeably Asia.
With demand for Opec’s oil next year being more than 1m barrels below current production levels, individual members have responded by reducing prices to maintain market share.
A severe geopolitical shock or a marked pick-up in global growth and demand could relatively quickly hand some control back to Opec.
But in the current environment, where supply is rising faster than demand, its role as the global policeman of oil markets is being called into question.
Julian Jessop, chief global economist at Capital Economics, says No.
The conventional view that booming non-Opec supply and slumping prices proves that Opec has lost control of the oil market is too simplistic.
For a start, the group stopped targeting prices more than 10 years ago.
The poorer members would always be happy to sell more oil at any price. But the rest, led by Saudi Arabia and the other wealthy Gulf countries, can afford to take a longer perspective.
A period of lower oil prices now might actually work in their favour – both by helping to support global demand, and by undermining the profitability of alternative sources of energy, including high-cost shale projects and renewables.
In the meantime, Opec members are still sitting on around 80 per cent of the world’s proven oil reserves, while Saudi Arabia is the only global player able to adjust output by a large amount in a short period.
The group still has, therefore, the power to bolster prices – if its key members wanted to.