It wouldn’t be the first time that a meeting of the Organisation of Petroleum Exporting Countries (Opec) has taken place in an atmosphere of deep division, bordering on outright hatred. In 1976, Saudi Arabia’s former oil minister Ahmed Zaki Yamani stormed out of the Opec gathering early when other members of the cartel wouldn’t agree to the wishes of his new master, King Khaled.
The 166th meeting of the group in Vienna next week is looking like it could end in a similarly acrimonious fashion with Saudi Arabia and several other members at loggerheads over what to do about falling oil prices.
Whatever action Opec agrees to take next week to halt the sharp decline in the value of crude, experts agree that one thing is clear: the world is entering into an era of lower oil prices that the group is almost powerless to change.
This new energy paradigm may result in oil trading at much lower levels than the $100 (£64) per barrel that consumers have grown used to paying over the last decade and reshape the entire global economy.
It could also trigger the eventual break-up of Opec, the group of mainly Middle East producers, which due to its control of 60pc of the world’s petroleum reserves has often been accused of acting like a cartel.
Even worse, some experts warn that a prolonged period of lower oil prices could reshape the entire political map of the Middle East, triggering a new wave of political uprisings in petrodollar sheikhdoms in the Persian Gulf, which depend on the income from crude to underwrite their high levels of public spending and support less wealthy client states in the Arab world.
“We are now entering a new era in world oil and we will have lower prices for some time to come,” says Daniel Yergin, the Pulitzer prize-winning author of The Quest: Energy Security and the Remaking of the Modern World. “Oil was really the last commodity in the super-cycle to remain standing.”
OPEC has a weaker hand today, controlling approximately a third of the oil market, down from about half twenty years ago. The cartel would like to see Saudi Arabia cut production but that would cost the swing producer market share. Even lower prices for Brent and WTI crude would slow US shale output but that would be a Pyrrhic victory OPEC which has continued to raise budgets in the apparent belief that oil prices would always rise.
OPEC could buy a little time by surprising the market with significant production cuts, but will it? Even if it agreed to lower production, that discipline has never held for long in the past. More importantly, how long will it be before other countries produce their own shale oil and gas, build ‘new nuclear’ plants or expand renewable programmes?
The fortunes of oil exporting countries are in decline and that is bullish for the rest of the world.Back to top