Are the Organisation of Petroleum Exporting Countries (Opec) and their allies, the Opec+, a group of 24 oil-producing countries — including the two heavyweights Russia and Saudi Arabia — finally ready to abandon their ‘whatever it takes strategy’?
In the wake of a deteriorating global crude demand growth outlook and a protracted trade dispute between the US and China, the group has struggled to shore up crude futures this year. And, in the process, Opec’s share of the global oil market has dwindled to the lowest level in several years in August this year - 30 per cent.
Has their strategy worked? Apparently, not.
Despite the efforts, crude markets have fallen nearly 20pc from a year ago, as the US, China trade war escalated and its toll on the global economy became more apparent.
For the time being, rather than anything else, crude markets seem more focused on the ongoing trade war between the US and China. Output cut is not really weighing on the market psyche.
The Opec+ is not oblivious to all this. It is alive to its limits at controlling and influencing the global crude markets. Hence some are now saying, the group is shifting its strategy, abandoning in the process, its current strategy of influencing the markets by cutting output. The policy has also resulted in the loss of their market share.
New signs are now emerging. Although the Opec+ is still over complying with the output quotas as agreed upon in the production restraint arrangement, yet, Opec has already begun loosening the shackles on output.
Not only Saudi Arabia raised its output, the volume of crude oil and condensate exports from Saudi Arabia, and the UAE also went up by 300,000bpd. Iraq’s exports also increased by 150,000bpd.
Russia-the largest non-Opec member that signed onto the production cut deal also increased its production in August.
In the above backdrop, Opec and its non-Opec partners are scheduled to meet in Abu Dhabi later this week to review their progress in stabilising world oil markets - by managing the group’s output.
In the changing market scenario, it is becoming increasingly difficult for some Opec players to adhere to the rules of the game under the output restraint arrangement. They cannot continue to lose market share.
Published in Dawn, September 8th, 2019