Group No 23

 Coordination of members’ petroleum policies

 Stabilization of international oil markets
 Elimination of harmful and unnecessary
fluctuations
 Securing a steady income for producers
 Efficient, regular and economic supply to
consumers
 Fair return on capital for investors in the oil
industry
 Does OPEC have any long-term control over
oil prices?

 How should OPEC respond to threat from U.S.

shale?

 What does that mean for the price outlook in

2017/18?
Before 1970
 No Major Role played by OPEC
During 1970
 Power of Price setting shifted from MNC Oil
Companies to OPEC
By 1973
 OPEC countries changed the Pricing System
1975-1985
 Oil Production Increase from 48% to 71%
Mid 1980
 Survival became uncertain

 Market shares fell from 52% to 30% in 1985

Big Changes in oil market have come from other sources

Supply-side developments
 North Sea
 Alaska
 China
 Soviet Union
 Deepwater
 Megaprojects
 Shale

Demand-side developments
 Fuel switching
 Fuel economy
 East Asian Tigers
 China
 Electric vehicles
 Uncertainty in Global Demand

 Structural shift in demand from developed world

to developing world

 Non-OPEC oil-producing nations (Russia , Norway,

 Canada, Mexico etc.) often increase production
when OPEC cuts it

 Russia overtook Saudi Arabia as the world’s biggest

crude supplier in 2009

 OPEC’s share of production has gone down.

 Problem of Member Cohesion within OPEC nations:-
Maintaining quota discipline within the cartel.

 Existence of factions within OPEC.

 Middle-Eastern Strife & Political instability in OPEC

oil-producing countries - Mostly authoritarian states
that use oil money as a means of sustaining political
power

 Future technological developments in areas of

renewable energy sources
 Effective Cartel Need three thing: Discipline, a
dominant market position and barriers to
entry

 Members do not comply production targets

 Market Share of approx 32% but declining

 Technology and innovation (Shale)

 Not Created equal

 Production cost difference

 Foreign Currency reserves

 War & Politcal unrest

 Crude oil market has been gradually rebalancing
since early 2016
 Transition from oversupply in 2014/15 to
undersupply in 2018/19
 Flat prices and calendar spreads both up
significantly pre-OPEC
 Compliance with OPEC deal appears good (mostly
due to Saudi)
 Hedge funds bought into OPEC’s rebalancing
narrative
 Hedge funds pushed prices and spreads too far, too
soon
 Crude stocks appear to be falling

 Invisible stocks becoming visible

 Supply & demand close to balance

 Inventory overhang remains large

 Rebalancing seems to be happening

 Slowly at first, likely to accelerate

 Uncertainty around reactivation of U.S. shale

 Higher prices versus protection of market

share

 Protection of relationships with refiners in

Asia
 Uncertain timing of crude oil market deficit and stock
drawdown

 Uncertain breakeven price of U.S. shale producers (cyclical

costs)

 Uncertain breakeven price for oil majors and offshore

(costs again)

 Uncertain global economic outlook (Trump, Brexit, macro-

cycle)

 Uncertain recovery in commodity-dependent emerging

markets

 OPEC compliance and eventual relaxation of output curbs

 Seek new buyers – Western Europe

 Include new members – Russia

 Shift from quota based regime to price based