How Russia changed OPEC and the global oil map: “Now they influence more than ever”

The Organization of the Petroleum Exporting Countries, also known as OPEC, was created in 1960 with the aim of exercising some control over global crude oil production and, in turn, over oil prices. The signatories to the initial agreement are Iraq, Iran, Kuwait, Saudi Arabia and Venezuela. Although the cartel has expanded on several occasions, it wasn’t until 2016 when it underwent a major transformation. Like almost all transformations, it happened out of necessity. The cessation of fracking and US shale oil has forced OPEC to look for major allies to exercise greater control over oil supplies.

OPEC meets regularly to set oil production targets and coordinate the actions of all of its members to help manage (a euphemism that really means control) global oil prices.

They said that “OPEC’s stated goal is to coordinate and standardize oil policies among member countries to ensure prices for producers, supply for consumers, and returns for capital for investors. However, its actions are known to have an impact on global crude oil prices.” From the US Department of Energy in a recently published note.

It was in the middle of the last decade when OPEC clearly began to lose control of oil prices. A barrel of Brent crude even fell below $40 in 2015, despite the fact that the global economy enjoyed great stability, while emerging countries constantly increased their demand for crude oil. It was the supply side that caused this oil crash. The break in the fracking industry in the United States to explain shale oil has sent that country’s crude oil production soaring, wresting OPEC’s firm control over prices.

Like any cartel, the ultimate goal of this organization is to maximize profit on each barrel of crude oil sold, while minimizing the amount It is known as consumer surplus. When competition increases, price control becomes more complex, producer profits fall, and consumer surplus increases. OPEC did not give up and decided to look for powerful new allies.

The big change in OPEC

“In 2016, this was largely in response to the sharp drop in oil prices due to large increases in oil production. American shale oil, OPEC signed an agreement with 10 oil producing countries to create what is now known as OPEC+. Among these ten countries was the third largest oil producing country in the world in 2022, which is Russia, which produced 13% of the global total (10.3 million barrels per day or 1 million barrels per day). Energy information management (EAI).

OPEC alone was producing 32.2 million barrels per day of crude oil in 2022, which is 40% of the total global oil production. The largest and most influential producer in OPEC is Saudi Arabia, which was the second largest oil producer in the world in 2022, after only the United States.

The OPEC union with Moscow was an important change. Russia’s oil production will remain above 10 million barrels per day in 2022 despite sanctions in response to its full-scale invasion of Ukraine. Exports still show great strength, even with the obstacles the West is trying to impose.

Now, Moscow and Riyadh effectively control this big cartel, with both countries pumping nearly 50% of the total crude oil for this “big cartel”: “Russia’s oil production and market influence is much greater than that of other OPEC+ countries, such as Mexico and KazakhstanTherefore, OPEC+ actions and actions are largely driven by the coordination between OPEC and Russia.”

For all these reasons, OPEC meetings and coordinated production targets have always affected global oil prices, and market participants (investors, traders, importers…) follow them closely.

OPEC+ countries combined It produces about 60% of all the world’s oil, just over 48 million barrels per day. According to the EIA, “now more than ever, it affects the balance of the global crude oil market and oil prices.”