By Manish Gupta
Oil prices rising by $5 on the production cut decision of OPEC and its allies earlier this month suggests the oil cartel continues to have significant sway over the prices and their influence is likely to remain strong for the next 10-20 years, oil experts said.
They went into a price war with Russia during the pandemic in 2020, brought Russia back to the table and prices were stabilised. They are increasingly active in meeting, monitoring and managing with an eye on the markets, which was not so regular earlier, he added.
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The Organization of the Petroleum Exporting Countries (OPEC), an initial group of 13 nations, added another 10 oil exporting countries, including Russia, in 2016 under the banner OPEC+ to support the oil price after a sharp decline from mid-2014 to early 2016.
Together, the OPEC+ produces 40% of the world’s crude oil. Besides, its share in the international oil trade stands at around 60%, according to analysts. In 2020, they slashed production by 9 million barrels per day, or 10% of the world’s consumption.
“Five dollars is a big change in oil and gas. If everything else remains constant, then the impact is very high. Though they do have control over the market, other circumstances can mar it,” said Deepak Mahurkar, partner and leader, oil and gas, PwC India.
“It’s not always that they have a control on prices, as there are many moving parts today—international supply chain, disruptions, war zones, demand, uncertainties of winter and summer. OPEC keeps trying, but it’s not always their objectives are met,” he added.
In October 2022, the oil cartel, led by Saudi Arabia and Russia, dropped production by 2 million barrels a day that increased the price of crude oil by 2% to $93.80.
Analysts believe that the group’s control over oil prices will continue as long as the demand for oil keeps rising and the technology for renewables doesn’t support the transition away from fossil fuel, which they feel will take anywhere between 10-20 years.
“We are at the cusp of an energy transition, but there are still issues with regard to technology and its viability. Battery storage is expected to reach about $67-70 per kWh by 2030, the tipping point for developing nations. For developed nations, the tipping point is $100.
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“They will continue to control oil prices at least until 2030. Even after the peak reliance on oil, it would not be a steep fall as different nations will follow at different paces to make the switch to alternatives, and Opec’s influence may continue till the early 2040s,” said Vashisht.
Mahurkar, too, believes that OPEC’s influence will start fading in the horizon of 10-20 years as the global demand for petroleum continues to rise.