Oil: OPEC influence waning, Nigeria be careful
When three members of a coalition leave, that says something about unmet objectives of the participating sovereigns in the cartel agreement.
Equador has given signal is leaving the Organisation of Petroleum Exporting Countries (OPEC). This means that three member exit the Cartel in three years.
Meristem in a review recalled that on 1st January, 2019, Qatar officially left OPEC, citing a need to refocus strategy on its vast gas deposits and de-emphasize crude production cum supply.
The Securities firm remarked that by far, the Middle East nation is the world’s largest LNG exporter with 81.0MTPA in 2017 which is about 28 percent market share.
For context, Australia trails in second place and supplied only 56.2MTPA which represents 19.2 percent of global LNG requirements.
In the crude supply market however, its contributions are relatively miniscule – only 0.62MMbpd (1.87 percent) in its final month as an OPEC member.
Qatar’s exit brought OPEC’s membership number down to 14, and the combined reserves down by 1.69 percent.
In October 2019, Ecuador informed the OPEC secretariat that it was leaving the coalition as well, as it sought avenues to increase its export revenue and combat a fiscal crisis.
Like Qatar, the Latin American nation is only a small part of the grand scheme of things within OPEC.
In September, Ecuador pumped 547,000bpd, 1.92 percent of OPEC’s gross production and 7.68 percent higher than its quota for the year.
Its reserves are also only 0.70 percent of OPEC and 0.55 percent of the World Total – evidence that its exit does little to dent the control that OPEC wields over the global oil market.
Nonetheless, the withdrawal could not have come at a more injurious time for the coalition, with lower oil prices, waning demand and the growing influence of US shale forcing severe production cuts.
OPEC has cut 7.51 percent (2.32MMbpd) of its production since the turn of the year – a figure which is 2.82 times what it initially intended to cut.
The exit of a member (however insignificant) at this critical time when it is planning to ramp up its efforts to manage the softening oil price outlook is damaging for its objectives.
Perhaps, this withdrawal is also evidence of growing discontent with the coalition’s long-term production cut strategy, and if unchecked, could trigger a further exodus, with 3 members having left in the last 3 years (Indonesia, Qatar and now, Ecuador).
Overall, the influence of the group appears to be waning, as evidenced by the market’s reaction to the Saudi mega-disruption in September.
OPEC appears to recognize this, and has called for greater cooperation by inviting all 97 oil producing nations of the world and the Gas Exporting Countries Forum to join up forces with it.