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Who really affects the price of oil?

Opec, The Organization for Petroleum Exporting Countries, has certainly been part of the criticism for many years. President Trump recently…

 President Trump Quote

Opec, The Organization for Petroleum Exporting Countries, has certainly been part of the criticism for many years.

President Trump recently accused the group of “ripping away the rest of the world” and keeping oil prices “artificially high”.

It has sometimes been called upon to keep the world out of control &#821

1; especially in the mid-1970s when cutting supplies and prices tripled.

But when Opec’s energy ministers meet in Vienna, does the group really have so much influence?

Production Control

They are united by some oil producing countries, not members of the country, especially Russia.

The group wants to stabilize or increase crude oil prices, which was sharply down in early October.

The main tool is to manage their own production levels – either by cutting whether prices increase or increase supply if they want them to fall, at least to a point that would not cause prices to collapse. [19659003] Opec’s presence on the market is really big enough to gain effect.

It accounts for more than 40% of global crude oil production.

It was higher – more than half in the early 1970s – but the current figure is still a significant proportion.

But the other 60% of the industry also plays a part.

Two non-Opec countries are particularly important in different ways: Russia and the United States.

Russia’s influence

Russia has contributed to Opec’s current aspiration to move prices higher.

It began in 2016 with an Opec decision “implementing a production adjustment”, which means a reduction of 1.2 million barrels per day.

Importantly, Russia and a number of other non-Opec members joined in their efforts to limit production.

After that, prices with the biggest international award, Brent Crude, reached $ 86 (£ 67) per barrel in early October – it was under $ 50 a barrel in the period prior to that decision.

That is not to say the decision from Opec and partners were the only factor.

Political concern in the Opec countries Venezuela, Libya and Nigeria have made it impossible for them to produce the amount of oil that they theoretically could.

Iran’s sanctions

Iran has been affected by the reintroduction of US sanctions on its nuclear program.

The possibility that Iran’s oil may not be available to the global market – or it would be less of it – has been an important factor driving prices higher this year.

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AFP

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Iran continues to sell oil to some countries

But some of Iran’s largest customers – China, India and Japan – have been granted temporary relief and can continue to buy Iranian oils for now without suffering from US action.

As a result, prices were actually lowered as there was less demand for oil from other manufacturers than was expected.

As said, the price increase since the end of 2016 was somewhat dependent on the agreement between Opec, Russia and others.

In Opec, Saudi Arabia has been the key.

According to estimates from the International Energy Agency, Saudi Arabia accounts for more than a third of Opec’s total production capacity and more than half of the Group’s spare capacity.

It is an indicator of the extent to which production is limited.

Important despite Saudi Arabia, it is reluctant to act alone over prices.

So, as it was generally expected, other Opec members would make a victim, but Russia also wanted to participate.

USA’s largest producer

There is a third major player in global operations; United States, currently the largest producer of all.

The United States is a completely different beast from the others.

Oil is produced by the private industry and makes decisions on the basis of what is profitable.

Russia’s major oil company is close to the government and the dominant company in Saudi Arabia – Saudi Arabia – is state-owned.

US oil producers do not cooperate with Opec to handle prices, as it would be illegal under US antitrust or competition law.

But something has happened in the United States in the last decade or so it has changed the global industry – the appearance of shale oil.

There are two important aspects to this.

Shell oil impact

The utilization of a relatively new type of resource has led to a long-term decline in US oil production.

The country still has to import oil. But now it can meet two thirds of their own needs, while just over a decade ago it was a third.

Even slate can react faster in a changing market.

It does not need as much investment as conventional oil. The investor can get the money back a lot faster, so the slate production can increase faster as prices begin to rise.

Slate was one of the reasons that oil prices fell sharply after mid-2014.

A possible reason for Opec not responding earlier than it did was the wish of some members, especially Saudi Arabia, to see the US slate producers being pushed down prices.

Opec still plays a role, but it is far from completely responsible for the global oil market.

And if global efforts to deal with climate change in the long term mean we become less dependent on oil – a big if perhaps – then Opec will mean a lot less.

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