OPEC: OPEC+ holds a whip-hand over global oil markets. It accounts for 59% of oil supply (see chart) and 80% of reserves. Its recent decision to slash oil production quotas by 2mbpd signals its intent to support ‘high-for-longer’ oil prices as rising recession risks threaten demand. This has inflamed relations with the US, which is struggling to lower inflation and faces midterm elections. But with global drilling activity depressed the policy options to lower oil prices are few.
HISTORY: Founded in 1960 and headquartered in Vienna, OPEC’s objective is to ‘coordinate and unify’ oil policies among its 13 members, from Algeria and Angola to Saudi Arabia, the UAE, and Venezuela. Saudi Arabia is both the biggest producer and holder of ‘excess’ capacity. Originally formed as a counterweight to the ‘seven sisters’ largest multinational oil majors it came into its own with the 1970’s oil embargoes and crises. The more informal OPEC+ was setup in 2016 by adding non-OPEC members like Russia, further boosting the groups clout.
OPTIONS: The US has no good options. The main problem is global drilling at 50% prior peaks and not quickly reacting to high prices given ESG, shareholder return, and regulation hurdles. Threatening OPEC (‘NOPEC’) with antitrust lawsuits, by revoking sovereign immunity, has many unintended consequences. US export restrictions to prioritise the local market would hit allies. US Special Petroleum Reserve levels are at multi-decade lows. A gasoline tax holiday is costly and US tax levels under half global averages. Easing Iran and Venezuela sanctions is politically fraught. As are conservation efforts, even though US energy use/person is 130% above Europe.
All data, figures & charts are valid as of 13/10/2022