Saudi maintains dominance in OPEC

Saudi maintains dominance in OPEC. The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization, headquartered at Vienna, Austria. It is a cartel comprising of 14 nations, with the mission of coordinating and unifying the petroleum policies among member countries. As of 2018, these 14 countries accounted for 61% of world’s oil exports and 80% of the world’s proven oil reserves. OPEC has a massive influence on the oil prices.

Why Saudi Arabia holds a more powerful position in OPEC:

• Saudi Arabia is by far the largest exporter of petroleum, catering around 22% of the world’s proven petroleum reserves. The oil and gas sector accounts for about 50% of the gross domestic product, and 85% of export earnings.
• It is the only member among the 14 countries, which has the capacity to impact the world’s supply materially. As Saudi Arabia stands at usually the top place among the top 10 oil producing nations and has a 13% share of the world’s total production.
• Saudi Arabia enjoys relatively stable political situation as compared to the other member countries.
• The OPEC’s ability to raise the production to fill the glut in the market is highly dependent on the capacity to raise the output of the member nations. Saudi Arabia as of June 2018 is publicly committed to increasing its output. Also, Saudi Arabia’s excess output will compensate Venezuela and Angola’s continuously falling production.
• The new sanctions imposed by US President Donald Trump on OPEC members Iran and Venezuela had a soaring effect on oil prices. Also, continuously increasing pressure from top Oil Importers US and China has pushed OPEC increase oil supplies which are being addressed by Saudi Arabia and Russia (non-OPEC) collectively.

Trump’s Effect

The oil industry got a new push from Donald Trump’s administration. Tax reforms introduced recently by Trump will help shale oil producers, off-shore oil giants, refiners and even wildcatters to gain billions of dollars in tax concessions.

As per the report of International Energy Agency, United States’ oil production is ready to takeover Saudi Arabian and Russian output levels in 2018. US oil production is 11 million barrels per day, which makes US the top dog in terms of oil production. But due to heavy demand its ability to influence prices are restricted.

At present, Saudi Arabia maintains its position as a top oil exporter, exporting in excess of seven million barrels per day compared with the US’ 1.7 million barrels.

Conclusion

Donald Trump’s tweeting against the OPEC and pressure from major buyers like China and India has forced oil producers like Saudi and Russia to increase production to maintain a price balance in the oil markets. The OPEC meeting in Vienna saw hectic negotiations among OPEC members and finally the 18-month embargo on production growth in crude for stronger oil prices gave way to an over 1 million barrel increase in production. This should be a sigh of relief for major buyers especially for governments where rising crude prices can trigger political and economical stability. But this also highlights that OPEC is still dominated by Saudi Arabia and its backroom maneuvering and arm-twisting was successful in getting what it wanted from other member countries.

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