Shifts in the Global Oil Landscape: The Exodus in the OPEC

189

Angola has announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC) starting January 1, 2024, following the departures of Ecuador in 2020 and Qatar in 2019. Having become an OPEC member in 2007, Angola currently produces approximately 1.1 million barrels per day, contrasting with the group’s overall production of 28 million barrels per day.

OPEC, established in 1960 by Saudi Arabia, Kuwait, Venezuela, Iran, and Iraq, welcomed Angola into its membership in 2007. Since 2017, OPEC has collaborated with Russia and other non-members in the OPEC+ alliance to regulate the market, a collaboration in which Angola has actively participated. The organization routinely convenes to establish oil production targets, aligning output to effectively manage global oil prices for the collective. In response to a significant surge in U.S. shale oil production causing a sharp decline in oil prices, OPEC, in 2016, entered into an agreement with 10 other oil-producing nations to form what is now known as OPEC+. Russia, the world’s third-largest oil producer in 2022, played a substantial role in this arrangement, contributing 13% of the world’s total production at 10.3 million barrels per day (b/d).

While OPEC’s stated goal is to coordinate and unify petroleum policies among its member countries to secure favorable conditions for producers, consumers, and investors, its primary recognition stems from its impact on global crude oil prices. In 2022, OPEC collectively produced an estimated 28.7 million b/d, accounting for 38% of the world’s total oil production. Saudi Arabia, the leading producer and a pivotal OPEC member, ranked as the world’s second-largest oil producer in 2022, following the United States. Despite facing sanctions in response to the Ukraine war, Russia maintained an oil output exceeding 10 million b/d in 2022, significantly influencing the market. The coordination between OPEC and Russia plays a central role in shaping the actions of the OPEC+ agreement, surpassing the impact of other participating countries like Mexico and Kazakhstan.

OPEC meetings and synchronized production targets have historically influenced global oil prices, attracting close scrutiny from market participants. The combined production of OPEC and OPEC+ countries constituted approximately 59% of the global oil production at 48 million b/d in 2022, emphasizing their substantial influence on global oil market balances and prices. Recent production agreements have exempted Iran and Libya due to sanctions and inherent instability in crude oil output. Over the past years, OPEC+ meetings have prioritized reducing oil production to stabilize prices post the COVID-19 pandemic, which drastically reduced demand and led to a considerable drop in oil prices. A notable agreement on April 2, 2023, saw OPEC+ members deciding to cut oil production by an additional 1.2 million b/d until the end of 2023, building upon existing production cuts. Consequently, monthly production targets are set to be 3.66 million b/d lower relative to actual August 2022 production throughout the remainder of 2023.

Angola’s exit from OPEC will result in a remaining membership of 12 countries with a crude oil production of approximately 27 million barrels per day (bpd), constituting around 27% of the global oil market, which totals 102 million bpd. This development further diminishes OPEC’s share in the world market, having dropped from 34% in 2010. OPEC’s market influence has been eroded not only by the departure of certain members but also by decisions within OPEC and OPEC+ to reduce production, coupled with increased output from non-OPEC nations, notably the United States.

In recent times, Angola has struggled to fulfill its OPEC+ production quota due to a decline in investment. For the year 2024, OPEC+ revised Angola’s oil output target to 1.11 million bpd during a meeting last month. This adjustment followed a scrutiny of production data for Nigeria, Angola, and Congo conducted by external analysts. Disagreeing with the revised quota, Angola, which had initially sought a target of 1.18 million bpd, expressed its dissent by sending a formal protest note to OPEC.

Angola’s departure would align with other nations with relatively modest oil production that have exited OPEC in recent times. In 2019, Qatar left the organization to concentrate on gas, a move that some analysts interpreted as a strategic move against Saudi Arabia, the de facto leader of the oil exporting group. Ecuador followed suit in 2020, while Indonesia suspended its membership in 2016. Concurrently, several smaller producers have joined OPEC in recent years, with Equatorial Guinea achieving full membership in 2017, Gabon rejoining in 2016, and Congo becoming a full member in 2018.

The International Energy Agency (IEA) projected that world oil supply would reach a new peak of 103.5 million barrels per day in 2024, primarily driven by record-setting production from the United States, Brazil, Guyana, and Canada, as outlined in its January Oil Market Report. Non-OPEC+ production is anticipated to dominate growth this year, contributing nearly 1.5 million barrels per day, according to the agency. OPEC+ supply is expected to remain largely stable compared to the previous year, assuming that additional voluntary cuts initiated this month are gradually phased out in the second quarter of 2024. The IEA’s experts caution that while OPEC+ supply management policies might push the oil market into a small deficit at the beginning of the year, robust growth from non-OPEC+ producers could result in a substantial surplus if the extra voluntary cuts by the OPEC+ group are unwound in the second quarter of 2024. Additionally, the IEA highlighted the potential decline in global oil supply in January due to severe cold weather impacting oil operations in the United States and Canada.

As Angola’s departure contributes to a dwindling OPEC membership, its crude oil production of approximately 27 million barrels per day further diminishes the organization’s share in the global oil market. Against the backdrop of OPEC’s strategic collaborations, production agreements, and challenges posed by non-member countries, the oil landscape is poised for continued shifts. The future trajectory will be shaped by the delicate balance between supply management policies and the resilience of non-OPEC+ producers, adding complexity to the complex array of global oil market dynamics.

– Syed Raiyan Amir is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA).

[Read Full Briefs as a Pdf]