Tension in OPEC as United States, Canada, Sudan, others supply more oil to market

For several years, members of the Organisation of Petroleum Exporting Countries, OPEC, which includes Nigeria, commanded dominant influence in the world of oil. But UDEME AKPAN reports that part of their market share has been eroded as many nations, including the United States, Canada, Sudan, Russia, China and Colombia now export commercial crude oil to the volatile global market.

The Organisation of the Petroleum Exporting Countries, OPEC was very clear with its objectives when it was established in 1960. The cartel that has Nigeria Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, United Arab Emirates and Venezuela was set to co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers. It was also established to achieve an efficient, economic and regular supply of petroleum to consuming nations; as well as secure a fair return on capital to investors.

The cartel which developed its collective vision established its objectives and Secretariat, in Geneva and later, Vienna before adopting a ‘Declaratory Statement of Petroleum Policy in Member Countries’ in 1968. The statement emphasised the inalienable right of nations to exercise permanent sovereignty over their natural resources in the interest of their national development.

Consequently, it rose to global prominence in the 1970s as its members, including Nigeria assumed increased control of their domestic petroleum industries and influenced the pricing of crude oil at the world markets. Expectedly, oil prices rose at least on two occasions. That was during the Arab oil embargo in 1973 and the outbreak of the Iranian Revolution in 1979. It did not seize to grow in the 1980s. But after reaching record levels early in the decade; prices started to crash in 1986, responding to a big oil glut.

An authoritative report of the cartel stated, “OPEC’s share of the smaller oil market fell heavily and its total petroleum revenue dropped below a third of earlier peaks, causing severe economic hardship for many Member Countries. Prices rallied in the final part of the decade, but to around half the levels of the early part, and OPEC’s share of newly growing world output began to recover. This was supported by OPEC introducing a group production ceiling divided among Member Countries and a Reference Basket for pricing, as well as significant progress with OPEC/non-OPEC dialogue and cooperation, seen as essential for market stability and reasonable prices. Environmental issues emerged on the international energy agenda.

In the 1990s, prices moved less dramatically than in the past due mainly to OPEC interventions, especially during the Middle East hostilities in 1990–91. The report stated, “But excessive volatility and general price weakness dominated the decade, and the South-East Asian economic downturn and mild Northern Hemisphere winter of 1998–99 saw prices back at 1986 levels. However, a solid recovery followed in a more integrated oil market, which was adjusting to the post-Soviet world, greater regionalism, globalisation, the communications revolution and other high-tech trends. Breakthroughs in producer-consumer dialogue matched continued advances in OPEC/non-OPEC relations. As the United Nations-sponsored climate change negotiations gathered momentum, after the Earth Summit of 1992, OPEC sought fairness, balance and realism in the treatment of oil supply. One country left OPEC, while another suspended its Membership.

Things were not stagnated thereafter. In the 2000s, the introduction of innovative price band mechanism assisted to stabilise crude prices in the early years of the decade. As the report puts it, “But a combination of market forces, speculation and other factors transformed the situation in 2004, pushing up prices and increasing volatility in a well-supplied crude market. Oil was used increasingly as an asset class. Prices soared to record levels in mid-2008, before collapsing in the emerging global financial turmoil and economic recession.

It also stated, “OPEC became prominent in supporting the oil sector, as part of global efforts to address the economic crisis. OPEC’s second and third summits in Caracas and Riyadh in 2000 and 2007 established stable energy markets, sustainable development and the environment as three guiding themes, and it adopted a comprehensive long-term strategy in 2005. One country joined OPEC, another reactivated its Membership and a third suspended it.”

Despite the bold steps and domineering influence of the cartel, one thing is certain. The net oil importing nations, led by the United States, Canada, South Sudan & Sudan, Russia, China, and Colombia have succeeded in taking part of OPEC’s market share through increased oil production and export. The September oil market report of the cartel stated that oil supply of non members of OPEC to the global market will increase by 1.2 million barrels per day in 2014 as a result of increased production and export of the United States and other nations.

The supply of United States and other nations is presently put at 1.1 million bpd. The authoritative report of OPEC stated, “Non-OPEC supply is anticipated to increase by 1.1 million bpd in 2013. Growth is supported by expected gains in the US, Canada, South Sudan & Sudan, Russia, China, and Colombia, while output from Syria, Norway, the UK and Australia is projected to decline.

The report stated that world oil demand will grow by 1.0 million bpd during the period. According to the report, in 2014, world oil demand is projected to grow by 1.0 million bpd, in line with the previous forecast. It maintained that OPEC NGLs are expected to average 5.8 million bpd in 2013 and 6.0 million bpd in 2014, representing growth of 0.2 million bpd and 0.1 million bpd respectively.

Unlike non OPEC, members of OPEC have in recent times been pumping less. For instance, in August this year, OPEC crude oil production stood at 30.23 million bpd, representing a decrease of 124 tb/d from the previous month, according to secondary sources. OPEC stated, “Preliminary data for August showed that US commercial oil stocks fell slightly by 0.7 mb, reversing the build of last five months, but still indicating a surplus of 30.7 mb with the five-year average.

It stated that the demand for OPEC crude in 2013 is forecast to average 29.9 mb/d, unchanged from the previous report and 0.5 mb/d lower than last year. The report stated that the demand for OPEC crude in 2014 was revised down slightly to 29.6 mb/d since the last MOMR to show a decline of 0.3 mb/d compared to the current year. The report maintained that: “World economic growth forecasts for 2013 and 2014 remain unchanged at 2.9per cent and 3.5per cent, respectively. US growth for 2013 has been revised up to 1.7per cent from 1.6per cent due to a stronger-than expected 2Q13; the 2014 forecast remains at 2.5per cent.

It stated, “After a return to growth in 2Q13, the Euro-zone is now expected to see a lower contraction of 0.5per cent in 2013; the forecast for 2014 remains at 0.6per cent. The report maintained that: “Japan’s forecast has been revised to 1.7per cent from 1.9per cent and the 2014 forecast is unchanged at 1.4per cent. India has recently been impacted by capital outflows and its 2013 forecast has been revised from 5.6per cent to 5.3per cent, while its 2014 growth remains at 6.0per cent.

More than that, the October 2013 report of the cartel stated that the United States and other non-members of OPEC are to supply as high as 54.1 million barrels per day, bpd to the global market this month, representing an increase of 1.1 per cent against its previous record. This sustainable increase in oil supply is expected to further affect the market share of OPEC member nations, including Nigeria that depend on oil export to generate foreign exchange for the execution of their yearly budgets.

The stated, “Non-OPEC oil supply is estimated at 54.1 mb/d, following an upward revision of 0.1 mb/d, representing growth of 1.1 mb/d. It stated that the upward adjustment was due mainly to higher-than-expected supply from the US, Brazil, Kazakhstan and South Sudan & Sudan. In 2014, non-OPEC oil supply is expected to increase by 1.2 mb/d, supported by anticipated growth in the US, Canada, Brazil, and South Sudan & Sudan.

The report stated that OPEC NGLs and nonconventional oils are expected to increase by 0.2 mb/d in 2013 and 0.1 mb/d in 2014. In September, total OPEC crude production averaged 30.05 mb/d, according to secondary sources, representing a drop of 390 tb/d from the previous month. It stated, “World economic growth for 2013 and 2014 remains unchanged at 2.9per cent and 3.5per cent respectively, although ongoing developments regarding the budget stand-off in the US requires close monitoring. US growth for 2013 has been revised down to 1.6per cent from 1.7per cent, while the 2014 forecast remains at 2.5per cent. The report maintained that, “The Euro-zone growth forecast for the current year has been revised up to -0.3per cent from -0.5per cent and to 0.7per cent from 0.6per cent for 2014. Japan’s forecast for 2013 has been revised up to 1.9per cent from 1.7per cent and growth for 2014 has been revised to 1.5per cent from 1.4per cent.

It stated that India has been impacted by capital outflows and its 2013 forecast has been lowered to 5.0oper cent and its 2014 forecast reduced to 5.8per cent. The report stated that China’s growth expectations remain unchanged at 7.6per cent and 7.7per cent for 2013 and 2014, respectively. It stated that, “World oil demand is estimated to average 89.7 mb/d in 2013, representing growth of 0.8 mb/d compared to the previous year, and unchanged from the previous report. The report maintained that upward revisions in OECD Americas and Europe were almost entirely offset by downward adjustments in OECD Asia Pacific, Other Asia and the FSU.

It stated, “For 2014, growth is expected to increase to around 1.0 mb/d to reach to 90.8 mb/d. Non-OECD countries are projected to lead oil demand growth with 1.2 mb/d, while OECD consumption is seen continuing to decline but at a lower rate of 0.2 mb/d. Demand for OPEC crude in 2013 is estimated to average 29.9 mb/d, unchanged from the previous report, representing a decline of 0.5 mb/d from 2012. In 2014, demand for OPEC crude is expected at 29.6 mb/d, also in line with the previous report, representing a decline of 0.3 mb/d compared to the current year.

These and other developments have attracted comments from some stakeholders. One of them is the International Energy Agency, IEA which has predicted that the United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017. The forecast which advises large industrialised nations on energy policy, were in sharp contrast to previous IEA reports, which saw Saudi Arabia leading.

The current report states that energy developments in the United States are profound and their effect will be felt well beyond North America, and the energy sector. It made it emphatic that: “The recent rebound in U.S. oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity with less expensive gas and electricity prices giving industry a competitive edge.”

The questions most people are asking are: how would that affect OPEC and its members, especially Nigeria and what should they do to ameliorate such negative impact? From all indications, exporting crude oil to United States and other emerging oil provinces would soon be like taking coal to Newcastle. In other words, the decision of the United States and others to stop or reduce oil imports from OPEC member nations may impact negatively on them in one way or another.

The National President of Oil and Gas Service Providers Association of Nigeria, OGSPAN, Mr. Colman Obasi said in a telephone interview that: “We in OGSPAN feel that uncontrolled oil export from the United States and other nations can have an oversupply problem on the market. This, we believe can be prevented through regular consultation between OPEC and non OPEC members. OPEC and other stakeholders should also continuously review the market as well as adopt proactive measures, capable of assisting to achieve adequate supply and market stability. These will impact positively on member states, including Nigeria that still depends heavily on petroleum to generate adequate foreign exchange for the implementation of yearly budgets.”

However, evident abounds to illustrate that OPEC has been engaging stakeholders in different parts of the world so as to achieve adequate supply and stability in the global market. Early this month, the Secretary General of OPEC, Dr. Abdalla S. El-Badri, stated at a conference in Kuwait that: “With stock levels and OPEC spare capacity continuing to support the supply and demand outlook. The market is stable, something OPEC continually strives for.”

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