60 years of OPEC: Is the cartel's power over the oil market broken?

 This week marks the 60th anniversary of OPEC, the cartel of major oil exporters that has, at times, held sway over the oil markets. It is a good time to ask: Is it still effective? The truth is that OPEC's power to impact the price of oil has waxed and waned over the past 60 years but has always been based on the portion of global spare capacity that it controls. With plenty of crude sloshing around in storage tanks worldwide, that makes it not so effective now.

When the Organization of Petroleum Exporting Countries was formed in 1960, it had two missions. The first was defend the price of oil through limits on oil production. The second was to foster the native governments’ control over the oil resources in their territories. But for more than a decade, OPEC was largely ineffective at achieving its goals. The cartel didn’t become a household name or a political talking point until 1973, when it succeeded in shocking the oil market by unilaterally forcing higher crude prices on both large international oil companies and consumers. (The oil embargo of that time was actually an act of Arab OPEC countries only).

The main reason OPEC was able to wrest this control in 1973 was that in 1970, crude oil production in Texas started to fall.

Starting in the early 1970s, Texas could no longer be counted on to meet rising demand in the U.S. Instead, the country started to rely on foreign oil imports, and because OPEC countries controlled 80% of the oil exports at that time, the U.S. found itself at OPEC’s mercy, as did U.S. allies like Japan. OPEC found it was able to simply set the price of oil where it wanted; customers had no choice but to pay, and the oil majors had to do what OPEC said or lose access to that oil. Ultimately, combined with the oil embargo, OPEC took control of the market, the price of oil skyrocketed and producing countries made a lot of money. The Saudi oil minister at the time, Zaki Yamani, declared triumphantly, “we are the masters of our own commodity.”

But OPEC was only able to do this because its producing countries controlled global spare capacity. Coupled with growing demand at the time, it meant the world was desperate for OPEC oil and no one was in a position to replace it. OPEC’s place in our collective memory is defined by that incident, but, in fact, OPEC’s power to impact the price of oil has been inconsistent over the past 60 years largely because it does not always maintain control over global spare capacity.

For example, in the 1980s, oil production from outside of OPEC increased, particularly from Alaska. As a result, OPEC’s portion of the global supply stream decreased. In 1986, oil prices collapsed, and OPEC was unable to do much to raise prices, because of the glut of oil from non-OPEC sources and weak oil demand. OPEC tried to cut production — in fact, Saudi Arabia cut its own production down to only 2 million barrels a day — but still prices remained depressed. Only rising demand shifted the balance to finally bring up prices.

In 2014, Saudi Arabia and OPEC crashed the price of oil by ending production quotas for the cartel, but in six years the cartel has been unable to bring the price anywhere near their pre-crash levels. This failure is because of the massive influx of supply from U.S. shale and other areas of global exploration bearing fruit. Before the Covid-19 pandemic, the U.S. was producing 13 million barrels per day — a world record. Even OPEC’s attempts to coordinate with outside countries such as Russia and Mexico only achieved limited results.

Now, OPEC is faced with an even worse situation. Because of the economic effects of the coronavirus health crisis, U.S. production has dipped below 11 million barrels per day, and yet we know the U.S. has the capacity for at least about 3 million more. Any effort by OPEC and its partners to curtail their own production and raise the price of oil will be met by a corresponding increase in production from U.S. shale producers jumping back on line to capitalize, however briefly on higher oil prices. Yes, shale-producing companies fail at times, but the assets remain and are simply taken over by someone else.

Is OPEC’s influence over the market broken? Not necessarily. Prolonged periods of low oil prices mean less money is being invested in the exploration and production of new oil sources. Due to the crash in 2014 and recent oil price catastrophe in the spring of 2020 (caused in large part, ironically, by OPEC member Saudi Arabia), virtually every producer has cut its exploration budget significantly. When the global economy recovers and if demand surges, we could be on the verge of an oil supply shortage that might vault OPEC back into a position as a major driver of prices.

On the other hand, OPEC’s fear is that demand will inexorably taper off as new innovations allow the world to replace oil with alternative fuels. In that case, rather than seeing a resurgence in political and market power, this cartel could find itself nothing more than an interesting case study in economic history.

Global oil demand will soar by a record 7 million bpd in 2021: OPEC

Global oil demand will soar by a record 7 million barrels per day (bpd) in 2021 as the global economy recovers from the coronavirus crisis but will remain below 2019 levels, Opec said in its monthly report.
It was the first report in which Opec assessed oil markets next year. It said the forecast assumed no further downside risks materialised in 2021 such as US-China trade tensions, high debt levels or a second wave of coronavirus infections.

“This assumes that Covid-19 is contained, especially in major economies, allowing for recovery in private household consumption and investment, supported by the massive stimulus measures undertaken to combat the pandemic,” Opec said.
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Oil prices collapsed this year after global demand fell by a third when governments imposed lockdowns to stop the spread of the virus.
OPEC said in 2020 oil demand would drop by 8.95 million bpd, slightly less than in last month's report.
In 2021, it expects efficiency gains and remote working to cap demand growth, keeping demand below record 2019 levels.
OPEC expects to cover the lion's share of the massive projected demand spike in 2021 with demand for its crude rising by 6 million bpd to reach 29.8 million bpd.

OPEC says trade tensions hurting oil demand, slashes consumption estimates

OPEC said that international trade tensions are hurting demand for oil, slashing its estimates for consumption earlier in the year and predicting further challenges ahead.
The organization, due to meet in the coming weeks to set production levels for the second half, said demand increased by less than 1 million barrels a day in the first quarter after cutting its assessment by more than 20%. The world economy is headed for its weakest growth in a decade, buffeted by a prolonged tariff battle between the US and China.

“Throughout the first half of this year, ongoing global trade tensions have escalated,” resulting in “weaker growth in global oil demand,” the cartel’s Vienna-based secretariat said in its monthly report. “The observed slowdown in the global economy in the first half will be further challenged in the second half.”
Oil prices slumped into a bear market last week, sinking below $60 a barrel in London for the first time since January, on concerns that faltering demand would lead to a crude surplus even as the Organization of Petroleum Exporting Countries and its allies keep supply in check. Prices surged 3% today on suspected attacks on oil tankers in the Persian Gulf.
Although OPEC reduced demand estimates for the first quarter, it kept forecasts for 2019 as a whole mostly unchanged and projects that consumption growth will accelerate during the rest of the year. World demand will rise by 1.14 million barrels a day, or 1.2%, on average this year, down from an estimate of 1.21 million a day in last month’s report.
As a result, the report signaled that if OPEC maintains production at current levels then global markets should tighten significantly during the third quarter, by about 1.3 million barrels a day. Output from its 14 members fell by 236,000 barrels a day to 29.9 million a day last month as the US tightened its squeeze on Iranian exports, it said.
Nonetheless, as OPEC and its partners prepare to meet in Vienna, its members appear focused on continuing to restrict supplies.
Saudi Arabian Energy Minister Khalid Al-Falih said in St. Petersburg last week that the organization is aligned on maintaining its output curbs during the rest of 2019, and awaits only a similar commitment from its ally, Russia.
As the booming American shale industry propels US production to new records, United Arab Emirates Energy Minister Suhail Al Mazrouei even indicated that OPEC may also need to constrain supply in 2020. The cartel pumps about 40% of the world’s oil.
Although the policy decision looks straightforward when OPEC and its partners convene, the producers are still struggling with one issue. As the tensions between Saudi Arabia and Iran continue to heat up, members are bickering over exactly which date to meet.

Iran gives Opec green light to reduce oil output by 0.8 mn bpd from 2019

Iran gave OPEC the green light on Friday to reduce oil output by around 0.8 million barrels per day from 2019 after finding a compromise with rival Saudi Arabia over a possible exemption from the cuts, an OPEC source said.
Tehran has emerged as a key sticking point for a deal but sources said the difficulties were now in the past and OPEC was refocusing on talks with non-member producers led by Russia to reduce supplies and prop up oil prices.

"Yes, Iran agreed in principle," the source said.
OPEC will propose that non-member producers contribute an additional 0.4 million bpd to the cuts, the source said. "It will be stamped when the non-OPEC meeting is done."
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The Organization of the Petroleum Exporting Countries was meeting in Vienna for a second day running, before discussions with its non-OPEC allies scheduled for 1400 GMT.
Saudi Arabia faces pressure from US President Donald Trump to help the global economy by refraining from cutting supplies.
An OPEC output reduction also would provide support to Iran by increasing the price of oil.
Possibly further complicating any OPEC decision is the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October. Trump has backed Saudi Crown Prince Mohammed bin Salman despite calls from many U.S. politicians to impose stiff sanctions on Riyadh.
US special representative for Iran Brian Hook met Falih in Vienna this week, in an unprecedented development ahead of an OPEC meeting. Saudi Arabia first denied the Hook-Falih discussion took place but later confirmed it.
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"U.S. political pressure is clearly a dominant factor at this OPEC meeting, limiting the scope of Saudi actions to rebalance the market," said Gary Ross, chief executive of Black Gold Investors and a veteran OPEC watcher.
RUSSIAN DILEMMA
The price of crude has fallen almost a third since October to around $60 a barrel as Saudi Arabia, Russia and the United Arab Emirates raised output to offset lower exports from Iran, OPEC's third-largest producer.
The price decline prompted OPEC and its allies to discuss output cuts, and Saudi Energy Minister Khalid al-Falih said on Thursday possible reductions by those involved ranged from 0.5-1.5 million bpd.
A reduction of 1 million bpd would be acceptable and so far was the main scenario, Falih said, but he added that Russia needed to commit significant volumes.
Russian Energy Minister Alexander Novak met with President Vladimir Putin in St Petersburg on Thursday and returned to the Austrian capital on Friday morning.
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A Russian Energy Ministry source said Moscow was ready to contribute a cut of around 200,000 bpd - more than the initially suggested figure of 150,000 bpd.
Russia, Saudi Arabia and the United States have been vying for the position of top crude producer in recent years. The United States is not part of any output-limiting initiative due to its anti-trust legislation and fragmented oil industry.
On Thursday, US government figures showed the country had become a net exporter of crude oil and refined products for the first time on record, underscoring how the surge in production has altered the supply equation in world markets.

OPEC waiting for Russia before deciding how much oil production to cut

OPEC has made a planned cut in oil output effectively conditional on the contribution from non-OPEC producer Russia, delegates said on Thursday as the group gathered in Vienna for a meeting aimed at supporting battered oil prices.
Five delegates said the group was waiting for news from Russia as Energy Minister Alexander Novak had flown back from Vienna for a possible meeting with President Vladimir Putin.

Novak returns to Vienna on Friday for talks between OPEC and its allies, following discussions among OPEC producers on Thursday.
"I am optimistic. There will be a deal, but it is unclear how much OPEC and how much non-OPEC will contribute. It is still under discussion," one delegate said.
Three delegates said OPEC and its allies could cut output by 1 million barrels per day if Russia contributed 150,000 bpd of that reduction. If Russia contributed around 250,000 bpd, the overall cut could exceed 1.3 million bpd.
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"The cut will be between 1.0 and 1.3 million bpd. We just have to see how it will be distributed," another delegate said.
Novak said on Thursday that Russia would find it harder to cut oil output in winter than other producers because of the cold weather.
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The Middle East-dominated Organization of the Petroleum Exporting Countries plans to cut output despite pressure from U.S. President Donald Trump to support the global economy by keeping oil prices low.
OPEC's de facto leader, Saudi Arabia, has indicated it wants the organisation and its allies to curb output by at least 1.3 million bpd, or 1.3 per cent of global production.
Riyadh wants Moscow to contribute at least 250,000-300,000 bpd to the cut but Russia insists the amount should be only half of that, OPEC and non-OPEC sources said.
The cuts would take September or October 2018 as baseline figures and last from January to June, Oman's Oil Minister Mohammed bin Hamad Al-Rumhy said on Wednesday.
Oil prices have crashed by almost a third since October to around $60 per barrel as Saudi Arabia, Russia and the UAE have raised output since June after Trump called for higher production to compensate for lower Iranian exports.
On Thursday, Brent futures fell more than 2 per cent as traders began to doubt OPEC would deliver a significant cut.
Russia, Saudi Arabia and the United States have been vying for the position of top crude producer in recent years. The United States is not part of any output-limiting initiative due to its anti-trust legislation and fragmented oil industry.
TRUMP RAISES PRESSURE
Iranian exports have plummeted after Washington imposed fresh sanctions on Tehran in November. But Washington gave sanctions waivers to some buyers of Iranian crude, further raising fears of an oil glut next year.
"Hopefully OPEC will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!" Trump wrote in a tweet on Wednesday.
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Possibly complicating any OPEC decision is the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October. Trump has backed Saudi Crown Prince Mohammed bin Salman despite calls from many U.S. politicians to impose stiff sanctions on Riyadh.
"We think OPEC will spend some time to choose the words being used. Being too cautious on the words, to please President Trump, runs however the risk of diluting the message," said Olivier Jakob from Petromatrix consultancy.

A looming oil supply glut may make Saudi regret choosing Trump over Opec

Opec and friends meet in Vienna later this week, and the backdrop isn’t pretty. Oil prices are their lowest in over a year, and there’s the prospect of a glut in 2019 if the group doesn’t make a new deal to cut production.
But agreement may be impossible. Saudi Arabia is adamant the burden must be shared. Others in the group argue that the kingdom’s output boost since June has created the problem and it is up to the kingdom to solve it by bearing the brunt of the cuts.

The swing producer is in a difficult position. From an economic perspective Saudi Arabia needs production to fall. From a political one it may not be able to afford it.
To most people it is inconceivable that Saudi dissident Jamal Khashoggi was murdered in the country’s consulate in Istanbul without the knowledge and approval of Crown Prince Mohammed Bin Salman. President Donald Trump is not one of them. With a degree of charity not accorded his domestic political rivals, he has refrained from calling for MBS, as the crown prince is known, to be locked up, asserting that the case against him has not been proved beyond doubt.
That puts the de facto Saudi leader in a weak position. At the moment, it is only the US president who is shielding him and his country from potential sanctions and an extension of the Sherman anti-trust act aimed at hobbling Opec. This is the same president that has pressed the group hard all year to lower oil prices. So it will be very difficult for oil minister Khalid al-Falih to lobby hard for a meaningful output cut in Vienna.
A cut is needed, though, to balance supply and demand in 2019 and prevent another build-up in oil stockpiles. Opec’s own forecast shows global inventories growing at a rate of around 1.4 million barrels a day next year if the group’s members keep producing as they did in October. True, the prospect that production in Iran and Venezuela will fall in the coming months will offset some of that stockbuild. But the cut required is now bigger than it needed to be after the Saudis responded to pressure from Trump for lower oil prices by pumping at record levels in November.
Saudi Arabia and Russia want a new baseline for the next round of cuts, one that enshrines their recent output increases. That may prove impossible.
The two countries have boosted their combined crude production by nearly 1.5 million barrels a day since May. Returning levels to the targets agreed in the current deal would wipe out the projected 2019 stockbuild. Countries that haven’t increased output in recent months don’t see why they should now cut further while allowing the Opec+ group’s two biggest producers a free pass.
But even rolling the existing deal forward could prove problematic. While several Opec nations have pledged their support for extending cuts, those assurances have come mostly from countries that don’t expect to make any real contributions themselves. Kuwait and the U.A.E., which have also raised output in recent months, may trim this, but Iraq will remain a problem. Further increases in Iraqi supply are likely in the coming months if a recent deal giving the central government access to the Kurdish export pipeline holds.
Bringing along the non-Opec partners for a third year of cuts may prove even more difficult, as I wrote here. Russia’s position remains unclear. President Vladimir Putin said last week that crude around $60 a barrel is “absolutely fine,” suggesting he faces little economic pressure to extend restraint. In the end it will be a political decision, based on his wider ambitions in the Middle East.
Kazakhstan’s output hit a new record in November and Mexico’s natural decline from aging fields, which it offered up as cuts last time, may be coming to an end.
The best that Opec and friends may be able to do when they meet is push the decision further down the road, to a meeting in early 2019, by which time they might hope that Trump will have decided that his constituents in Texas also need higher oil prices.
With no new agreement, the existing one would roll over, at least until they meet again. True, adhering to it would require Saudi Arabia, the UAE and Kuwait to give up all of their recent output increases and few others to make any real cuts from current levels.
On paper, that would be enough to rebalance supply and demand in 2019, but it would still leave MBS with the problem of making very obvious production cuts against the wishes of the US president. To convince the market it is serious about rebalancing supply and demand Saudi Arabia will need to announce the cuts and implement them in a transparent way. To avoid repercussions from the White House MBS needs to do exactly the opposite.
It’s a difficult situation, but having chosen Trump over its Opec partners by boosting its output in June, the kingdom isn’t likely to receive much sympathy in Vienna.
Who’d be a Saudi Crown Prince?

Saudi think-tank studying possible effect of Opec break up: WSJ report

Saudi Arabia's top government-funded think-tank is studying the possible effects on oil markets of a breakup of OPEC, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
The research project doesn't reflect an active debate inside the government over whether to leave the Organization of the Petroleum Exporting Countries in the near term, the Journal reported.

Opec was not immediately available for comment.
Read our full coverage on fu

Opec makes a u-turn, now talks about moves to support oil prices

The wind changed again in a stormy oil market as OPEC signaled it will consider a return to cutting output next year, potentially making the second production U-turn this year.
Amid a summer of rising prices and unprecedented political pressure from President Donald Trump, Saudi Arabia, Russia and other producers had opened the taps. Now, with the U.S. midterm elections over and crude futures wilting in the face of another historic shale oil surge, the cartel will discuss a change of course this weekend.

“The message from OPEC looks like: fasten the seat belts,” said Bob McNally, president of Rapidan Energy Advisors LLC, a consultant in Washington. The cartel looks sets to “put pedal to the metal to boost production, and then immediately slam the brakes pretty hard and talk about cutting supply."
Ministers from the Organization of Petroleum Exporting Countries and its allies will meet in Abu Dhabi on Sunday and discuss scenarios including the possibility of cutting production again next year, according to delegates. Some members are concerned that inventories are rising, they said, asking not to be named because the discussions are private.
If the group, led by Saudi Arabia, does ultimately decide fresh cutbacks are necessary, there are a number of challenges. It will need to once again secure the support of rival-turned-partner Russia, which has less need for high oil prices. There’s also the risk of antagonizing Trump, who repeatedly accused the group on Twitter of inflating prices.
Another reversal would seem to be a far cry from the usual OPEC mantra of preserving stability and careful market stewardship. Yet it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand.
Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above $86 a barrel last month.
Since then, big things have happened on the other side of the supply equation. OPEC has been in “produce as much as you can mode” to reassure consumers, according to Saudi Energy Minister Khalid Al-Falih. The kingdom has lifted output close to record levels, while Libya is pumping the most in five years. Unexpected waivers for buyers of Iranian crude have blunted the impact of U.S. sanctions.
Then there’s the small matter of American production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the U.S.-China trade war.
Crude prices already reflect a much weaker outlook for 2019. Brent for January delivery has retreated about 15 percent from a four-year high reached in early October. Prices jumped 1.3 percent to $73.02 at 1:38 p.m. in London on Wednesday.
“They will absolutely want to at some point next year try to arrange a reduction in production,” said Ed Morse, head of commodities at Citigroup Inc. “Everything points to a fairly weak balance: the world economy is decelerating, the China trade tensions are having a visible impact on demand.”
The meeting this weekend of the Joint Ministerial Monitoring Committee, a six-nation body representing the broader 25-country coalition, is intended as just an interim review before all ministers discuss policy next month in Vienna. Still, it could give a strong signal of what’s to come.
There’s a lot to consider before the final decision in December. U.S. sanctions could end up squeezing Iranian output so much that other producers won’t need to cut. Although Washington granted some of Iran’s customers temporary waivers that let them keep buying, the Trump administration has said repeatedly it intends to entirely choke off the country’s energy revenues.
Shale has plenty of potential to surprise. In August, the country unexpectedly overtook Russia as the world’s biggest crude producer, with output of 11.3 million barrels a day. The Energy Information Administration just increased its 2019 production forecast by 300,000 barrels a day to 12.06 million.
Then there are political considerations. Russia, the most important non-OPEC partner in the coalition, has ramped up output since June to a post-Soviet record and President Vladimir Putin said the country is comfortable with crude prices as low as $65.
Saudi Minister Al-Falih discussed the agenda of the Abu Dhabi meeting with his Russian counterpart Alexander Novak by phone on Monday, an official familiar with the matter said, asking not to be identified as the information isn’t public yet. While there has been talk in the market that the group should consider renewed output cuts, Russia currently isn’t ready for such a decision, the official said.
The Saudis may also struggle to persuade the rest of OPEC to back a deal pledging production cuts. Some members, like Iraq, are pressing on with new projects. Others may have grown weary of having their production policy steered by the kingdom.
One member of the cartel, which has been cutting production involuntarily due to U.S. sanctions, appeared to welcome the prospect of other nations doing the same.
“Saudi Arabia and Russia have increased production, and prices have come down $15 a barrel,” Hossein Kazempour Ardebili, Iran’s representative to OPEC, said in an interview. “They have over-balanced the market,” and have no choice but to cut by about 1 million barrels a day, he said.

What happens if there is no Opec? It won't be a paradise for sure

Imagine a world without Opec. This is what the sponsors of legislation introduced in both houses of Congress seem to want. Versions of the “No Oil Producing and Exporting Cartels Act,” or the Nopec bill, are working their way through the Senate and the House of Representatives, and are likely to find much more support from the White House than they have in the past – Presidents George W Bush and Barack Obama both threatened to veto similar legislation.
The bill would allow US anti-trust laws to be enforced against Opec members whom the sponsors say have "used production quotas to keep oil prices artificially high." This is a popular argument in a country where the right to cheap gasoline might have been written into the constitution alongside the right to bear arms, had that document been drafted a couple of hundred years later than it was. But we need to look a bit further than the gas station forecourt. And when we do, we will not be looking upon the promised land.
Opec introduced production quotas in 1982, to allocate output between member countries faced with a third year of falling global oil demand and rising supply from countries like Mexico and India, which left them with as much as 12 million barrels a day of spare capacity. Saudi Arabia had already reduced its oil production by 30 per cent and, just as in 2016, was no longer prepared to shoulder alone the burden of balancing oil supply and demand.
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What would have happened if Opec hadn't got together? Sure, drivers in America and elsewhere would have enjoyed cheaper gasoline for a while. But probably not for too long. Even with the group’s supply management, oil prices reached a low of around $14 a barrel in 1986, according to data from BP Plc.
How much further would they have fallen if member nations had continued to produce without restraint? Certainly low enough to make production uneconomic in Alaska, the Gulf of Mexico, the North Sea, Western Canada and a host of other oil provinces that have become mainstays of non-Opec production. The group’s supply management created the space for 33 billion barrels of additional non-Opec production in the 20 years it took for them to get their supply back to the level it had been in 1978.
But nearly 40 years later, the world's a different place. Here is what would happen if the Nopec bill became law and the group failed to protect itself from its reach.
This would be the world without Opec.
There could be no collective action to try to balance oil supply and demand. Saudi Arabia has said repeatedly that it wouldn't balance the market on its own and support high-cost oil producers.
You don't have to search too far to see what that means in practice. Just cast your mind back four years, during the thick of Opec's pump-at-will policy. Oil prices fell to $26 a barrel – great for drivers, but not so good for the US oil patch, or for investment in future production capacity needed to offset natural decline in existing fields.
As Saudi Arabia raised its production, the number of rigs drilling for oil in the US fell by 80 per cent. The only region in the world where drilling didn't drop was the Middle East. It wasn't long before there were calls, including from candidate Trump's energy adviser, for Opec to act to reduce supply and rescue prices that were too low for the American shale industry.
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If the Nopec bill becomes law, there’s little incentive for anyone to hold spare production capacity. In recent decades this willingness has been an important safety valve to relieve the pressure of supply disruptions. A study by the King Abdullah Petroleum Studies and Research Center, initiated in 2016, assessed the annual economic benefit to the global economy of Opec's spare production capacity at between $170 billion and $200 billion through the reduction in price volatility in times of supply disruption. Without that buffer, oil prices could have spiked above $300 a barrel during the Libyan revolution, the study found.
The biggest consumer-held oil stockpile – the US Strategic Petroleum Reserve – could not have coped with the loss of supply that accompanied Iraq's 1990 invasion of Kuwait, and it would have struggled to offset the loss of Libyan production in 2011 for more than five months. The loss of supply that may result from Trump’s revival of sanctions against Iran would exceed the reserve’s ability to deliver within four months.
It seems perverse to be attacking President Trump’s ally against Iran and the world's only source of spare capacity, while simultaneously initiating the biggest supply disruption in nearly 30 years. But attacking allies and destabilising markets seems to be a favourite pastime in Washington these days.

Start reducing oil prices or expect demand to sink, India warns OPEC

The world’s fastest growing crude consumer has a warning for OPEC: Start reducing prices, or waning demand will mean a curb in purchases from the crude cartel.
At least that’s the suggestion from Sanjiv Singh, chairman of Indian Oil Corp., the country’s biggest refiner. If prices continue rising at the pace they’ve been gaining in the past month and a half, the South Asia nation’s consumers will likely see alternatives such as electric vehicles and gas as more cost-effective, replacing 1 million barrels of the country’s daily oil use by 2025, he said.
“Demand cannot be seen in isolation to prices, especially for a price sensitive market like India,” Singh said. “You may not see an impact on demand in the short term, but in the long term, definitely it will have implications.”
Fears of a global supply crunch following outages from Libya and Venezuela to Canada have led to an almost 5 per cent jump in oil since April. While the Organization of Petroleum Exporting Countries and its allies have agreed to boost curbs to alleviate tightness, concerns remain that the additional barrels won’t be enough to meet growing demand, spurring US President Donald Trump to tweet a series of tirades against the cartel.
Increasing dependence
Singh says expectations that India’s oil consumption will grow to 10 million barrels a day by 2040, making it the fastest growing consumer worldwide, is based on the assumption that prices will be at $83 a barrel by 2025 and $113 by 2040. But with crude already near $80, it’s likely that the cost will be seen as too expensive, reducing demand in the next seven years, he said.
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Vested Interests
“If instead of $83, prices reach $100 by 2025, then other forms of energy will become more competitive,” Singh said.
India has a vested interest in lower oil prices. With little of its own natural resources, the country imported about 1.6 billion barrels (220.43 million tons) of oil last year, or about 80 percent of its crude requirements, mostly from OPEC nations. Now with prices hitting fresh three-year highs and with Brent up about 36 percent since the start of last year when OPEC and allies including Russia began reducing production, the country has grown louder in its criticism over the cost of crude.
Indian Oil, also the nation’s biggest fuel retailer, has been preparing for alternatives to crude by expanding into natural gas, renewables and electricity to power vehicles. It’s building a liquefied natural gas import terminal in southern India, has about 202 megawatts of renewable energy capacity from solar and wind projects, and is testing India’s first hydrogen fuel cell-based bus with Tata Motors Ltd.

ALSO READ: Why Trump, Saudi bonhomie may not help oil prices stay down in long term
Stretching It
But arguing alternative energy is enough to help substitute 1 million barrels a day might be a bit of a stretch, says Abhishek Kumar, a senior energy analyst at Interfax Energy.
“India’s growing economy will propel its demand for gasoline and diesel, and it will be no mean feat to find alternatives,” Kumar said. Natural gas as a transport fuel “is unlikely to challenge the dominance of oil products till India becomes self-sufficient in natural gas production, which is at best a long-term prospect. Pressure is on OPEC to do more from key customers, including India.”
Singh says OPEC is aware of these threats.
“It’s not that they don’t realize,” Singh said. “We have told them, kindly don’t think growth will come only because everyone is projecting it. It is heavily linked with prices.”

$60 a barrel ideal oil price for India as it will bring investments: HPCL

On a day the Organization of the Petroleum Exporting Countries (Opec) and its allies declared a modest increase in production, state-run Hindustan Petroleum Corporation (HPCL) indicated on Saturday though the move would stabilise prices, India as a consumer would like to see a further rise in supply to the market.
M K Surana, chairman and managing director, HPCL, told Business Standard that $60 a barrel would be the ideal crude oil price for India as it would bring investments to the upstream sector. “For India, it will be good to have a lower price regime. The current move will stabilise the market. But a difference of opinion among Opec players has led to speculations in the market,” Surana said.

The decision by Opec came after major consumers like the US, China and India urged the lobby to raise the supply of crude oil to avert a deficit. On Saturday, major producers outside Opec, including Mexico and Kazakhstan, met ministers from the cartel and endorsed a nominal output increase of 1 million barrels a day, said Ecuador’s Minister of Hydrocarbons Carlos Perez. In real terms, that would add 600,000 to 700,000 barrels a day of crude to the market over six months.
Friday’s Opec agreement was a fudge in the time-honoured tradition of the group, committing to boost output without saying which countries would increase or by how much. “Earlier, the cut in production was more than the mandated because of a decline in production in countries like Venezuela. It is not clear whether the 1 million bpd increase is from the current level or from the level decided earlier,” Surana said.
With inputs from Bloomberg

OPEC and its allies agree to oil supply boost in victory for Saudis, Russia

OPEC and its allies gave the final sign-off to an oil-production increase, sealing a victory for Saudi Arabia and Russia.
Major producers outside the Organization of Petroleum Exporting Countries — including Mexico and Kazakhstan —met ministers from the cartel on Saturday and endorsed a nominal output increase of 1 million barrels a day, said Ecuador’s Minister of Hydrocarbons Carlos Perez. In real terms, that would add 600,000 to 700,000 barrels a day of crude to the market over about six months, said Oman’s Oil Minister Mohammed Al Rumhy.
Friday’s OPEC agreement, reached after a last-minute compromise with Iran, was a fudge in the time-honoured tradition of the group, committing to boost output without saying which countries would increase or by how much. The deal is a win for Saudi Arabia and Russia, which were the first members to suggest an increase and hold the most spare capacity.
They now have the flexibility to respond to disruptions and moderate prices at a time when US sanctions on Iran and Venezuela threaten to throw the oil market into turmoil.
The terms of the deal were rather convoluted. The group’s agreed production increase of 1 million barrels a day was described as “nominal” by Saudi Energy Minister Khalid Al-Falih. In reality, the accord will add a smaller amount of oil to the market because a number of countries are unable to raise their output.
ALSO READ: Opec, Russia to raise oil output, Saudi pledges 'measurable' supply boost
Saturday’s agreement was just as vague as Friday’s, said one delegate. It didn’t detail how the production increase would be split between

OPEC and non-OPEC nations, said Perez. Angola’s Minister of Petroleum Diamantino Azevedo said the group had agreed the principles of distribution.
On Friday, every minister seemed to have his own interpretation of what the hike meant for the market. Iran saw no more than 500,000 additional barrels a day, Nigeria predicted 700,000 and Iraq said it could be as much as 800,000. The official communiques from both meetings didn’t mention specifics, instead pledging that the group would focus on restoring its output cuts to the level originally agreed in 2016.
ALSO READ: Opec, allies to increase oil production by 500,000 bpd after new deal: Iran
Some traders were far from confident that such an agreement will meet the multiple challenges OPEC faces. The situation in Venezuela is volatile, with a wide range of predictions of how much further its production could slump as its industry unravels. There are also growing signs that the renewed US sanctions on Iran could have a larger impact than the 1 million-barrel-a-day reduction in exports seen in 2012.
Iran doesn’t believe its customers will get waivers from the US government that would allow them to continue crude purchases, Oil Minister Bijan Namdar Zanganeh said in a Bloomberg television interview on Friday.
American officials are said to have asked Japan to completely halt oil imports from Iran, going beyond the cuts demanded during the Obama-era sanctions.
ALSO READ: Opec, allies to increase oil production by 500,000 bpd after new deal: Iran
Crude prices surged on Friday following the vaguely worded OPEC agreement. West Texas Intermediate crude jumped 4.6 per cent to $68.58 a barrel, the biggest gain in six months.
US President Donald Trump, whose tweets played a part in prompting Saudi Arabia to push for a production increase, indicated on Friday that he’ll be watching the progress of their new agreement closely. “Hope OPEC will increase output substantially,” Trump said on Twitter. “Need to keep prices down!”
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Indian oil companies to gain from higher Opec output

In a step that is beneficial to India, the Organization of Petroleum Exporting Countries (Opec) decided to raise its output at a meeting held in Vienna on Friday.
Though the producer group did not specify the increase, it may be in the range of 1 million barrels per day (bpd), or 1 per cent of the global supply.

According to media reports, the supply increase is likely to fall in the range of 600,000-800,000 bpd because only some producers like Saudi Arabia and the United Arab Emirates will be able to raise output further.
The increase in production happened after consumers like the United States, China and India knocked on the door of the producer lobby to avoid an oil deficit.
For India, every $1 a barrel increase in crude oil prices will have an impact on its current account deficit by around $1 billion. Industry sources say the output rise may bring down prices to the level of $70 a barrel.
ALSO READ: Opec agrees to oil-output boost after reaching last-minute Iran compromise
After the decision, Brent crude oil prices were seen at $74.11 a barrel, up 1.45 per cent from the previous day.
The move will ease supply constraints, which were in place since January last year and had led to a rise in international crude oil prices.
Though Opec had planned a cut of 1.8 million barrels per day, its output dropped further to 2.8 million bpd owing to decline in production in Venezuela.
“The prices are going to soften and may come down to a comfortable range for Indian companies. However, this will not be having an immediate impact on retail prices as fuel prices are linked to international product prices,” said a senior official of state-run Hindustan Petroleum Corporation (HPCL).
According to an estimate, every $1 increase in international crude oil prices demands an increase of at least 63 paise a litre in Indian fuel rates. India is the third-largest consumer of crude oil in the world with around 4.14 million barrels per day or 4 per cent of global consumption.
“The current increase in production is a neutral development. The move may lead to prices dropping to $70 a barrel as a lot will depend on the sanctions on Iran. For India, more steps are required as it had budgeted prices at an average of $65 a barrel for the current financial year,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India.
The current rise in production has come in the backdrop of resistance by producers like Iran, Venezuela and Iraq. The rising prices increased India’s import bill by 25 per cent in 2017-18 to $109.11 billion over the previous financial year.
According to reports, the input cost of oil refineries has jumped 40 per cent, compared to six months ago. If crude oil prices further increase, the government will be forced to go for a cut in excise duty on petrol and diesel too. For a Rs 1 cut in excise duty, the government will lose about Rs 130 billion.