OPEC’s Role in Ensuring Stability of Oil Markets
- 9 May 2015
Oil markets are undoubtedly passing through a critical phase in the history of their development. The changes taking effect at the moment have repercussions at various levels. Markets that have been experiencing chronic weakness in demand for a long time, especially since the beginning of the global financial crisis, are now facing new challenges. These developments have helped accelerate the pace of change and pushed the market in a new direction not witnessed for decades.
These challenges have been caused by a number of changes – quantitative as well as qualitative – on the supply side of the global oil markets. Quantitative changes are represented in the unprecedented rise in world production of crude oil coming from producers outside the Organization of the Petroleum Exporting Countries (OPEC), mainly Russia and the United States of America. This has affected the nature of relationship between supply and demand in the market, turning into a chronic state of excess supply. According to the latest Reuters survey, this surplus is currently estimated at 1.99 million barrels per day, the highest in 10 years.
On the qualitative side, international oil markets are going through change they have not witnessed for decades. This adds weight to the current phase in the development of the market and is also related to increasing global production from shale oil. This increase is particularly concentrated in the US and Canada. In addition to the role this development has played in increasing the aggregate global oil supply, it has recently caused two other developments that are particularly important for the markets. These are increasing the relative weight of non-conventional sources in comparison to conventional sources, and pushing to the rise of new oil powers which, for decades, were classified as traditional consumers of oil.
It can also be said that the global oil markets, which has been chronically vulnerable on the demand side, are witnessing great competition on the supply side, competing for production quotas among major oil producers outside OPEC. There is also another type of competition between conventional and non-conventional sources of oil. By observing OPEC’s behavior, one can come to the conclusion that the organization is fully aware of how critical this stage is. The organization’s reaction to the recent changes confirms that it is taking calculated steps to safeguard the interests of its members and to ensure that the stability of world oil markets, enhanced global energy security, and stimulating global economy will complete the recovery from the effects of the global financial crisis.
The changes taking place in international oil markets are largely expected to continue during this phase. It is also likely that this phase ends with a new mechanism in place, which would make the task of conventional oil producers more difficult. This calls for close monitoring of developments in the markets, especially by OPEC members, to deal with its aftermath immediately and effectively. This should fully prepare them for the future, safeguard their interests, and maintain its vital role in the market. It is this role which – for decades since the establishment of the organization – has been a major factor in guaranteeing the stability of global oil markets and energy security in general.