An influential oil producers’ alliance could collapse if unity dissolves around output policy, according to the managing partner of investing group Clean Energy Transition.
Speaking to CNBC’s “Street Signs Europe” on Thursday, Per Lekander said waning oil demand growth and a lack of cooperation may facilitate the demise of OPEC+ — a group of 23 nations that produces roughly 40% of the world’s crude oil.
The breakup of OPEC+, Lekander said, could send oil prices careening to as low as $35 per barrel.
“In a growing market, time is your friend. You just need to wait a bit and things tighten up and improve,” Lekander said. “In a declining market, time is your enemy. You have to keep cutting, keep cutting, keep cutting.”
He added, “The more negative growth [there] is, and the less cooperation you have — and remember the last OPEC decision, it was really the Saudis doing it on their own … so I would say, if my forecast is correct, and I’m very sure it is … it is going to break.”
A spokesperson for OPEC was not immediately available to comment.
OPEC+ has been trimming oil production since November. Oil prices, which are down sharply year-to-date, were trading slightly higher on Thursday afternoon.
Brent crude futures with September expiry were up around 0.8% at $83.53 a barrel at around midday London time, while U.S. West Texas Intermediate crude futureswith September delivery rose 1% to trade at $79.56 a barrel. Both contracts are up over 12% so far this month.
“There was a period in the 1990s and the 2000s where supply was so much, they couldn’t jack up the price, but for most of the time, the oil price since 1974 has been artificially too high,” Lekander said.
“If the cartel can’t operate, I would say short-term you go to $35 and mid-term probably $45,” he added.
The OPEC+ group has sought to distance itself from accusations of cartel behavior, saying its policies target global supply inventories, rather than specific fixed prices. Nevertheless, some Middle East nations in the coalition, which heavily depend on fossil fuel revenues, list oil price assumptions and forecasts in their national budget plans.
The Organization of Petroleum Exporting Countries was initially formed in 1960 by five founding members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The alliance rose to international prominence through the following decade and has gradually expanded. OPEC joined forces with 10 non-OPEC partners — including heavyweight Russia — to jointly agree production policy in 2016, informally creating the coalition known as OPEC+.
OPEC itself is actively seeking to recruit new members to the alliance, Secretary-General Haitham al-Ghais said in early July.
OPEC+ officials have frequently stressed the group’s unity in policy-making, although allied countries typically also vie to protect national interests when accepting output commitments. OPEC+ cooperation briefly ceased for one month in 2020, triggering a price war as Russia and Saudi Arabia flooded the market. The alliance later reunited in May of that year, agreeing stark production cuts to address the drop in global demand triggered by lower transport fuel consumption, after the onset of the Covid-19 pandemic. Since then, the OPEC+ alliance has been careful to telegraph unity in its decision-making, including in its voluntary production cuts.
In addition to their coalition commitments, several OPEC+ members are now carrying out 1.66 million barrels per day of discretionary output declines until the end of 2024. Saudi Arabia and Russia are further implementing an additional 1 million-barrels-per-day and a 500,000 barrels-per-day drop in their production and exports over July and August, respectively.
HOUSTON, July 28 (Reuters) – Exxon Mobil Corp (XOM.N) on Friday reported a 56% slump in second-quarter profit, missing Wall Street bets and joining rivals hurt by a sharp drop in energy prices and lower fuel margins.
Second-quarter results from oil majors have tumbled from huge profits booked a year ago after Russia’s invasion of Ukraine sent oil and gas prices soaring.
Chevron Corp (CVX.N), Shell (SHEL.L) and TotalEnergies (TTEF.PA) have reported profit falls of 48%, 56% and 49%, respectively.
If not with being compared to the windfall profits post ukraine invasion, I think they would claiming that the current quarterly profits where fantastic. I guess they need more or bigger wars.
Yeah…. Wake me when they get back to their Q1 ’21 profits.
https://www.reuters.com/graphics/EXXONMOBIL-OUTLOOK/zjvqjaqjrpx/chart.png
If the recent “Verge” article is correct on the amount of “Clean Energy” stacked up for approval in the U.S, should be quite a prod against the fossil fuel dependency the country has at the moment.
“There’s a huge backlog of more than 2,000 gigawatts of clean energy generation and storage that’s just waiting in line for approval. That’s about as much capacity as the nation’s existing power plants have for generating electricity today.”
https://www.theverge.com/2023/7/28/23811031/ferc-renewable-energy-solar-wind-project-interconnection-electricity-grid
Excerpt:
“To clear the backlog, the new federal rule will require grid managers to assess projects in clusters instead of one at a time. They’ll also face firm deadlines and penalties for failing to finish interconnection studies on time. The new rule prioritizes projects that are the farthest along in development and also includes new requirements for project developers, like financial deposits to discourage them from proposing projects that might not pull through.”
I definitely like the idea of having projects having firmer commitments with money up front.