2014-15 : global oil markets continued to suffer from a year-and-a-half long persistent oversupply coupled with increasing signs of a slowdown in the Chinese economy. Along with these two factors, a significant price decline in global equity and commodity markets helped to depress oil prices. In addition, oil prices were driven down by financial flows caused by fluctuations in other asset prices, including the US dollar.
2015-16 : OPEC and non-OPEC countries made a historical decision to adjust production in order to curb crude oversupply, it still ended the year at its lowest point. This occurred as the saga of the oil market’s supply glut and the weakening of the Chinese economy continued. Moreover, swelling crude and product inventories also continued to pressure the oil complex.Apart from positive market sentiment, arising from the efforts of major producers to trim output and expectations for dwindling US production, support came from healthy physical oil markets, particularly in Asia led to the increase later on.
Challenges facing OPEC are:
The cost of non-OPEC crude oil has decreased significantly due to the technological advances in shale oil which has undermined OPEC’s attempts to rebalance the oil market and stabilise the prices. Even after the OPEC members agreed to limit their output, US output has increased to 8 million barrels per day, the highest level since the 1980s. Production is expected to increase in Canada and Brazil as well.
Iraq an OPEC member is now producing 3.5 million barrels per day but visions to increase production to 9-10 million barrels per day by 2020. Iran and Iraq’s production boost will still be high for Saudi Arabia offset. This will lead to regional rival disputes as Saudi Arabia may ask them to limit export growth but without substantial incentives it will be very difficult to back.
OPEC’s biggest threat in the coming time is the worldwide campaign for renewable energy, and fight against fossil fuels which are considered a main source of greenhouse emissions. Oil is facing competition from natural gas majorly for feedstock for industrial plants and the increasing efficiency of hybrid and electric engines due to rapid technological advancements.
Recommendations for Future
Asia is turning into a potential market for OPEC even bigger than Europe and North America combined due to their increasing demands to fund their developing economies. Co-dependence between OPEC and Asian countries, majorly China and India is developing and needs to be strengthened. China is involved in projects in Saudi Arabia, Iraq and Iran and imports about 15% from Angola. India is also Nigeria’s biggest customer. Asia is OPEC’s saving grace to maintain it’s oil prices. In order to maintain this co-dependence it needs to keep oil prices reasonably for Asia to afford as well as for Asia’s economic growth to contribute to increase OPEC’s oil demand and prevent alternatives of renewable energy from becoming more economically feasible.
OPEC’s strategy of cutting down production to curtail oil prices may only be beneficial in the short run, and therefore members should be encouraged to diversify into alternative energy sources. Diversification into electric vehicles and aircrafts can prove to be an advantage.
Al-Qaeda and other terrorist organisations should not be allowed to associate or take advantage of the oil industry.
OPEC needs to focus on other issues than the oil price. The role of foreign private companies, privatisation of projects through joint ventures, reduction in duplication of docking,shipping nd tanker facilities and regional cooperation
Venturing into wind and solar source of renewable energy will be more profitable as they are now cheaper than gas,oil and coal in my conditions.