The Organization of Petroleum Exporting Countries (OPEC), in its failure to lower the global oil supply glut to push crude prices higher, and with some members leaving the cartel while other face oil output declines, is losing both control and market share.
Once the global oil market's most powerful actor, controlling around 70% of world oil supply in the 1970s, OPEC lowered its oil production twice in the last three years to counter oversupply but failed to push crude prices to a sustainable level.
OPEC has been hemorrhaging members for the last few years with many leaving the organization to pursue their own oil output policy against OPEC’s restrictions while some struggle to maintain their oil production. This pushed the organization's market share down to 29% in September 2019, according to data compiled by Anadolu Agency on OPEC's Monthly Oil Market Report for October.
The organization has been struggling with internal problems since Indonesia suspended its membership in November 2016, long-time member Qatar left the organization after 58 years on Jan. 1 2019, and Ecuador has put its foot halfway out the door with plans to leave the 14-nation bloc in January next year.
Also, involuntary supply cuts is adding to the cartel’s difficulties in controlling the oil market. Venezuela's oil production dipped with economic weakness since early 2015. Libya continues to witness random disruption in production because of the ongoing civil war, while Iran is unable to export oil due to U.S. sanctions. Russia has failed to curb its oil production as much as Saudi Arabia, and the U.S. shale revolution has given OPEC producers a run for their money as the country since late 2018 has been sitting on the top spot in the world in crude oil production overtaking OPEC member Saudi Arabia.
- Ecuador leaving in New Year
OPEC was founded in 1960 by Saudi Arabia, Iraq, Kuwait, Iran and Venezuela to break the dominance of seven international oil companies, also known as the "Seven Sisters," who held a monopoly over oil production and pricing around the world at that time.
Between 1962 and 1975, some of the world's biggest oil producers; Qatar and the United Arab Emirates joined the organization, in addition to Indonesia, Libya, Nigeria, Algiers and Ecuador.
With new members, OPEC managed to control 70% of the global oil supply, establishing a tight grip on the market and crude prices.
Current OPEC Secretary-General Mohammed Barkindo, a Nigerian who held key roles in the group since 1986, helped some new members from Africa to join the bloc - Angola in 2007, Equatorial Guinea in 2017 and the Republic of the Congo in 2018, while Gabon returned to the organization in 2016 – a former member between 1975 and 1995.
Despite the new blood, some members did not see eye to eye with OPEC policies over the years and chose to leave the organization.
Ecuador, who became a member in 1973, left the group in 1992 since it wanted to produce more crude oil during that time than OPEC allowed under its quota.
The country rejoined the bloc in 2007, but announced on Oct. 1, 2018, that it wants to leave the group on Jan.1, 2020 since it needs to produce more oil than OPEC permits to support its struggling economy.
Qatar ended its 58-years of OPEC membership on Jan. 1, 2019 stating that it wants to focus more on liquefied natural gas production and exports. Yet, it was no secret that the country has been isolated in the Middle East by Saudi Arabia and its allies due to its alleged support for the Iranian regime.
Iran is another member that has been isolated in the group due to its regional political rivalry with OPEC heavyweight Saudi Arabia. The country is exempt from OPEC's production cut agreement with non-OPEC countries due to U.S. sanctions that have crippled its oil industry and exports.
One of the founding members, Venezuela, the world's largest crude oil reserve holder, has been struggling with its economy, which has taken a toll on its oil industry. The country's crude oil output has been on a steady decline for the last few years.
Libya is another country that fails to maintain its crude production level as the ongoing civil war is causing unexpected disruptions to its oil supply.
Indonesia, one of the world's top 20 biggest economies today, joined OPEC in 1962 but left the organization in 2008 when it became a net oil importer. Although rejoining the group in 2016, it asked to have a temporary suspension to its membership after 11 months when OPEC decided to curb its production.
-US shale capturing market share
Saudi-led OPEC and Russia-led non-OPEC agreed in December 2016 to lower their total oil production by 1.8 million barrels per day (bpd), which was later extended until the end of 2018.
On Dec. 7, 2018, the alliance, dubbed as OPEC+, agreed to lower total crude output by an additional 1.2 million bpd to support prices once again and extended this until the end of March 2020.
However, while OPEC lowered its output by 800,000 bpd, with Saudis absorbing most of the cut by curbing its supply by 500,000 bpd, Russia agreed to less production cut volumes of 228,000 bpd.
Two production cuts in three years caused OPEC to lose market share, which was mostly recaptured by U.S. shale oil companies.
With new techniques, such as hydraulic fracturing and horizontal drilling, the U.S.' crude oil production surpassed both heavyweights Russia and Saudi Arabia from November 2018 to climb to the top spot in the world.
While the U.S.' crude oil production averaged 5 million bpd in 2008, having a 5.8% share in global oil supply, OPEC's production averaged 31.2 million bpd in that year with a 36% share.
Most recently, the U.S.' crude oil output climbed to a record high level of 12.6 million bpd, increasing its share in the global market to 13%, while OPEC's output averaged 28.5 million bpd in September, and saw its market shape drop to 29%.
OPEC will hold its 177th conference on Dec. 5, while the 7th OPEC and non-OPEC ministerial meeting will be held on Dec. 6 in Vienna.
The alliance is expected to make deeper cuts to their oil production levels to support prices, but the question remains as to how long OPEC will continue to curb its production and keep losing its share in the global market.