OPEC's Unruliness is a Hindrance to Russia and Saudi Arabia

At the November summit of the Organization of the Petroleum Exporting Countries and its allies (opec+), what was meant to be a low-key event was instead delayed and moved to an online platform, revealing a disagreement between the cartel's major players and its smaller ones. After accepting cuts to their production at the June assembly, opec+'s African members were displeased to find out that Russia and Saudi Arabia, the coalition's two main leaders, were asking for even more reductions. Angola's oil minister, Diamantino Azevedo, was intending to boycott the physical meeting altogether.

 On November 30th, the OPEC+ alliance will hold an online meeting. It is suggested that they will be implementing minor reductions in production up to 2024. This has been the same plan of action since October, which is to counteract downward pricing by controlling output. Saudi Arabia and Russia have been in the forefront of this, with 1m b/d and 300,000 b/d respectively; the rest of OPEC+ has added 3.7m b/d in cuts. Nevertheless, the Brent crude benchmark has fallen by almost a fifth since the strategy was initiated--which is currently at $82 a barrel--and has been decreasing for the last five weeks.

 An image shown by The Economist displays the idea of a person wearing a face mask, signifying the current necessity of adhering to health guidelines in order to prevent the spread of the virus. The photo symbolizes the reality of how life has changed due to the pandemic.

 The discussions at the November OPEC+ assembly reveal the tribulations the cartel is facing. The decline in oil prices is due to the reduction in global demand because of worries concerning China's financial situation and the lessened prospect of an all-out war in the Gaza Strip. In addition, other producers such as the United States, Brazil, and Guyana have boosted production, negating the output curbs of OPEC+. (See Chart).

 However, the cost decreases demonstrate the difficulty of OPEC+ in keeping up the production level. The cartel extended the membership by ten countries when it became OPEC+, and intends to add more. A bigger organization must accommodate varied interests, like it is obvious now. The Angolan minister who was supposed to not attend the in-person conference also left another gathering in June accompanied by the Gabonese minister. The two ministers were apparently rebelling against the output cuts. Along with others, they are concerned that the production cuts will affect the investment in search.

 Though Angola has kept within its agreed-upon limitations, other countries have not been as compliant. Iraq has been producing an additional 180,000 b/d, while Iran and Venezuela, due to sanctions, have not been subject to the quotas. Mexico, even though a part of opec+, has refused to accept the caps. As Russia and Saudi Arabia have reduced their own production, all of these countries have been taking advantage of the market share opening up.

 At a similar juncture back in 2014, Alberto Behar from the International Monetary Fund and Robert Ritz from Cambridge University have stated, the group adopted a distinct approach. That year, the members of Opec increased production with the purpose of decreasing the price of oil, so as to increase their market share and overpower their American rivals. This provided the additional benefit of boosting demand, and there was no need for members to stick to predetermined limits as they could make oil as much as they desired.

 It is no longer practical to use the same strategy as OPEC previously did. JPMorgan Chase, a bank, suggests that since 2014 the cost of extracting oil from the United States has gone down by more than a third. American oil producers have become more proficient and better able to withstand potential cuts since they have developed methods to break rocks which produces more clefts, permitting the retrieval of oil, and they now dig deeper wells which have a longer life.

 The Kingdom of Saudi Arabia is hoping that OPEC+'s current plan will be a success. The International Monetary Fund (IMF) says that the country's budget needs an oil price of $85 per barrel in order to balance, and when considering expenses from the sovereign wealth fund, the number is even higher. Russia, on the other hand, requires oil revenues to finance their war in Ukraine. By postponing the meeting to the 30th of November, the price of Brent crude dropped by 5%.

The lack of control within OPEC is creating difficulties for Russia and Saudi Arabia, according to a report from The Economist published on November 29, 2023.