TODAY.AZ / Business

OPEC losing influence

08 May 2015 [15:29] - TODAY.AZ
By Elena Kosolapova

The Organization of the Petroleum Exporting Countries (OPEC)’s influence has been declining for a long time, European expert on energy issues told Trend.

“Its influence on prices is questionable, as also the rise in the last decade was mainly driven by East Asian demand. Today, the price fall is driven by demand too,” said Marco Giuli, an analyst on energy issues at the Brussels-based European Policy Centre.

The decline in OPEC’s influence was provoked by several factors, according to the expert.

“First, since the 80's, supply has been a declining factor in the price dynamics, with speculative components and demand counting much more. Second, internal rivalry compromised the possibility of sustain coordinated behavior for a long time,” he said.

In particular, the rivalry between Saudi Arabia and Iran, which are member states of OPEC, is reaching unprecedented levels, Giuli said.

The expert noted that at the moment several OPEC countries have an interest in higher oil prices, especially Venezuela and Iran.

However, Saudi Arabia – the only “enforcer” in the cartel due to its huge spare capacity - sticks to its production targets, he said.

“Some experts think that Saudi Arabia intends to price out high-cost shale producers in the US, fearing that the North American self-sufficiency might be part of the US intention to no longer accepting the role of “guarantor of security of last resort” for the Gulf," Giuli said.

"Others believe that Saudi Arabia intends to retaliate against Russia and Iran for their support to Bashar Assad in Syria and the regional hegemonic ambitions of Iran."

He also said that some believe that looking at the history of OPEC negotiations, Saudi Arabia wants to approach the forthcoming OPEC talks from a position of high production, which boosts its bargaining leverage.

However, in spite of dissatisfaction of some OPEC members with the current situation with oil prices they cannot act individually to change the state of affairs in the oil market, as the market today is all but tight, according to the expert.

“The market is in contango, meaning that a lot of oil is extracted and stored waiting for higher prices in the future. In such a situation, if someone withdraw production, immediately loses market shares,” he said.

Giuli also does not believe that lifting of the Western sanctions off Iran, which is expected in case of reaching the nuclear agreement between Iran and the P5+1, which includes the US, France, the UK, Russia, China plus Germany, will greatly change the world oil market.

“Iran holds huge reserves, but to become a game changer it will need huge investments in its domestic infrastructures and massive reform in its subsidies regime. Both will not be easy to achieve,” Giuli said.

OPEC was founded in 1960. Currently, the organization has a total of 12 member countries: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

/By Trend/
URL: http://www.today.az/news/business/140622.html

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