OPEC’s Control Over Global Oil Prices Slips Away
In a competitive oil market with regional rivalries, OPEC members fail to coordinate production levels
Member countries of the Organization of Petroleum Exporting Countries produce about 40% of the world’s crude oil, with exports representing about 60% of petroleum traded internationally. But when OPEC failed to reach agreement on controlling oil production levels at its April meeting, prices surprisingly crept up higher. For now, the global market has concluded that no producer, including OPEC, can exert control over prices, writes Chris Miller, associate director of Yale University’s Grand Strategy Program. “The oil-price slump has put financial pressure on oil producers across the world, from Venezuela to Malaysia to Kazakhstan,” he explains. “Over the past year, many officials and industry executives began advocating for cooperation between Russia and OPEC in an attempt to bolster prices.” Saudi Arabia refused to go along without rival Iran, and the deal may not have accomplished much anyway. The United States, which prohibits its companies from joining cartels, has become a swing producer, and alternative energies are also slowing growth in the demand for oil.
When negotiations in Doha, Qatar, between some of the world’s largest petroleum producers failed to deliver an expected freeze of oil production, markets responded in a surprising fashion: The price of oil rallied, hitting its highest point of the year.
Part of the price increase was driven by news of a strike among oil workers in Kuwait, now settled, which threatened to temporarily restrict supply. But the main conclusion to draw from the oil market’s counterintuitive response to the failure to freeze oil production is that the world’s largest oil exporters, including the OPEC cartel, have far less control over price trends than they once did.
More than at any time in decades, the world oil market is competitive, and no single producer can exert a significant effect on prices.
