Skip to comments.OPECís Family Feud
Posted on 09/28/2015 5:47:49 AM PDT by thackney
When Venezuelan Oil Minister Juan Pablo Pérez Alfonso resigned in 1963, he blasted the Organization of Petroleum Exporting Countries, at the time torn by internal rivalries, for failing to produce any benefits for his country. Half a century later, OPEC is still split and Venezuela is again unhappy, this time at the unwillingness of the organizations top producer, Saudi Arabia, to rescue oil prices from a six-year low thats dragging the battered Venezuelan economy into an even deeper crisis.
On Sept. 10, Venezuelas oil minister, Eulogio del Pino, tweeted appeals for OPEC and non-OPEC countries to have a discussion on fair prices, minimum prices to ensure sustainability and to overcome our differences of opinion. Venezuelan President Nicolás Maduro said on Sept. 16 that he was making progress on organizing a summit of petroleum exporting countries to have that discussion. OPEC member Algeria is backing the Venezuela-proposed conferenceas well as Maduros desire for a higher price. Venezuelan officials didnt respond to requests for comment.
Maduros plans wont pan out unless Saudi Arabia stops flooding the market. Theres no sign itll retreat from that strategy, which is helping it preserve and even gain market share. OPEC is of no use today, says former Algerian Prime Minister Ahmed Benbitour. The war now is about market share, not price, and Algeria is getting no benefit from this organization. OPEC declined to comment for this story.
Venezuelas and Algerias complaints raise the question of why some members stay in OPEC if the Saudis call the shots and ignore pleas for higher prices. Neither Venezuela nor Algeria has made moves to quit. Not only is the group intact, but former member Indonesia is returning, boosting membership to 13 nations.
Disgruntled members dont leave because they still believe there could be something in the future where the group does make a decision to boost prices and cut production, says Jamie Webster, an oil analyst at researcher IHS. Its much easier to just keep OPEC alive than to shut it down, and with it a key communication channel among governments whose financial health depends largely on oil income.
Of the 1.7 trillion barrels that remain to be extracted worldwide, 1.2 trillion, or 70 percent, are controlled by OPECs current members. Venezuela and Saudi Arabia hold 18 percent and 16 percent, respectively, and Iran and Iraq 9 percent each, according to oil major BP. These four nations, with Kuwait, are OPECs founding members.
Just look at the outlook for oil in the next 10, 20, 30 years. It is expected that OPEC countries will actually have to come up with most of the growth in supply to meet the demand, says former OPEC Secretary General Adnan Shihab-Eldin of Kuwait. If OPEC didnt exist, it would be needed in the future much more than in the present or the past to coordinate production and keep the world supplied.
Pricing has often been a bone of contention, with Algeria, Iran, Iraq, Libya, and Venezuela pushing for higher prices, a hawkish stand compared with Saudi Arabia and its neighbors Kuwait, Qatar, and the United Arab Emirates. Venezuelas position within OPEC is to pursue a strategy of low production and high prices, since they cant attract investments to boost output, says Carlos Rossi, president of Caracas-based consulting firm EnergyNomics. Gulf Arabs are more inclined to accept a lower price to keep consumers hooked on cheap gasoline and thus extend the Age of Oil. Saudi Arabia in particular is more likely to accept a lower price that preserves global growth and gives it influence far in excess of its actual economy. Says Ed Morse, Citigroup Global Markets managing director: Saudi Arabias economy is the size of Illinoiss. Yet the nation sits at the same table as China, Europe, Japan, and the U.S. thanks to its role as the major producer.
Instead of lowering output to prop up prices, as suggested by Algeria and Venezuela, Saudi Oil Minister Ali al-Naimi lobbied his OPEC counterparts in November 2014 not to yield market share to competing suppliers, including U.S. producers of shale oil. Crude sank and trades at about $50 a barrel, half its level a year ago. What OPEC wanted to do is have a fresh look at the structural changes that have taken place in the oil market with the advent of U.S. shale and other producers, who at a very high price were able to bring in fresh supplies that far exceed what demand called for, says Shihab-Eldin.
Algerias and Venezuelas attempts to recruit non-OPEC producers in an effort to increase prices have been rejected by Russia and Mexico, two of the largest exporters outside the group. The Mexicans say their focus is on restoring the productivity of their biggest field. Russia says it doesnt have the ability of some Persian Gulf producers to quickly raise or lower output because of the harsh winters and complex geology at its Siberian oil fields. You cannot regulate productivity of Russian wells simply by turning a faucet, Sergei Klubkov, exploration and production analyst at Moscow-based Vygon Consulting, said in an e-mail.
The International Energy Agency says Saudi Arabia is winning the fight for market share, driving higher-cost producersfor example, some U.S. shale companiesout of business. Non-OPEC supply is expected to fall in 2016 by the most in more than two decades as producers shut wells that cant operate profitably with oil below $50 a barrel. Production outside OPEC will fall by 500,000 barrels a day, to 57.7 million, in 2016, the agency said on Sept. 11.
Thats no solace for those in OPEC who are hard-pressed for cash. Fresh supply is likely to hit the market from Iran next year, when the oil export ban is lifted as a result of the July agreement with the U.S. and the other Western powers restricting its nuclear program. Oil prices could drop to as low as $20 a barrel, Goldman Sachs said on Sept. 11.
Saudi Arabias production of about 10.5 million barrels a day is its highest ever, and the kingdom still has spare capacity of more than a million barrels. Other OPEC members are pumping less oil as projects to bring fresh crude to the market were derailed or delayed by political or social unrest. Venezuela is producing 2.5 million barrels a day, vs. a peak of 3.7 million in 1970. Algeria and Nigeria are in similar straits.
Those three nations, plus Iraq and Libya, are the OPEC members most vulnerable to political turmoil as cheap oil hammers their currencies and weakens their ability to sustain social subsidies. Venezuela appears poised for a near-term crisis amid protests and shortages of basic goods as Decembers parliamentary elections get closer, analysts Christopher Louney and Helima Croft of the Royal Bank of Canada said in an August report on OPECs fragile five.
OPEC is like a family where the children quarrel but cant do without each other, says Karin Kneissl, a Vienna-based university lecturer on energy politics and author of Energy Poker. They know they are better off talking to each other to preserve the common, long-term interest; even those who left long to return if they can.
Indonesia voluntarily suspended its OPEC membership in 2009 as its production declined to the point that it had to import oil. Indonesia still pumps oil for its domestic market. It will return officially on Dec. 4 as the first member that isnt a net oil exporter. As OPECs only member in East Asia, Indonesia could help strengthen the groups ties in the region, where oil demand is strongest, said Indonesian Energy Minister Sudirman Said in June. As both oil consumer and producer, it will help OPEC bridge the divide between the two groups, he said. The benefits from staying with the group outweigh by far the cost of membership, says Hasan Qabazard, chief executive officer of Kuwait Catalyst and former head of research at OPEC. Getting firsthand access to market data, research, and information that may affect the market could be the motivation behind Indonesias application to return.
I dont see OPEC falling apart, says Fayyad Al-Nima, Iraqs deputy oil minister for extraction. And Venezuelas reason for sticking with the group? Says Carl Larry, head of oil and gas for market researcher Frost & Sullivan: Its either stay with OPEC and tag along or leave OPEC and be by yourself.
The bottom line: Saudi Arabia manages to impose its will on other members of OPEC, thanks to its ability to flood the market.
The Saudis have huge monthly cash calls to subsidize Egypt, maintain order at home and to fund the myriad battles they are having with the Shi’ites. They are using their monetary reserves and will continue to pump whatever oil necessary from their huge reserves regardless of the low price to fund theses growing demands. Its just too bad for Venezuela.
Guess what OPEC? It’s not the 70’s/80’s anymore.
Saudi Arabia has withdrawn as much as $70 billion from global asset managers as OPECs largest oil producer seeks to plug its budget deficit
Venezuela says others have to cut production... really?
The Venezuelans can go to the other side of the market equation, and produce more. Drill more. Explore more. Hey, try some fracking. If others won’t produce less... you go produce more.
Oh, you can’t do that, I forgot, as a communist hell hole, you can’t just execrate a plan to produce more product.
This line could be used in any article on this socialist/Marxist bus driver. History shows that when it comes to economic success it could be used for EVERY socialist leader...ever.
I was surprised to read that China is the #4 oil producer in the world.
This is often a sign of the beginning of the end of an industry in Socialistic/Communistic countries. Investors apparently don't like to be told how to run their investments once they are built.
Number 4, but less than half of #3 in production.
Does this include that which is extractable only via horizontal-drilling/fracking?
That is proved reserves, meaning the field has been located and flow tested, regardless of the drilling, completion or production method. Also, they have to be economic to produce in recent pricing structures.
It does not include fields drilled but not flow tested, located on seismic data only, fields expected due to geology. It does not include fields such as this that contain oil, but are deemed to expensive to produce, regardless if that is production cost, regulation or tax costs.
Total proved reserves of oil are generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and geological conditions.
more at the link
I should have also clarified, that only includes the oil in the field that meets the criteria above.
If a field contains 100 million barrels of oil, but it is only economic to get the first 5%, only 5 million barrels is counted as proved reserves. The proved reserve number could double or be cut in half just by change in the price of oil. The 1.7 trillion number was from measurement and data back in 2014.
Of the 1.7 trillion barrels that remain to be extracted worldwide, 1.2 trillion, or 70 percent, are controlled by OPEC's current members. Venezuela and Saudi Arabia hold 18 percent and 16 percent, respectively, and Iran and Iraq 9 percent each, according to oil major BP. These four nations, with Kuwait, are OPEC's founding members. "Just look at the outlook for oil in the next 10, 20, 30 years. It is expected that OPEC countries will actually have to come up with most of the growth in supply to meet the demand," says former OPEC Secretary General Adnan Shihab-Eldin of Kuwait.
Venezuela is the odd man out. It really sucks to be them. They are basically road kill. It’s Ground Hog day in a sense for them except it never gets better. Every day is worse than the last.
Thanks for the explanation.
That we know of today, right? Seems like that number keeps going up, no matter how much has already been pumped out of the ground... (But no, I don't believe the reserves are infinite, either.)
Those are only proved reserves. Oil in fields already discovered and flow tested. Only the portion economic to produce with today’s technology and prices is counted.
The number does go up because exploration doesn’t quit, technology doesn’t quit, and prices tend to rise over the decades.
Thanks; also for the link at #11.
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