You might think the OPEC+ cartel is growing stronger. After all, it recently welcomed Brazil as its latest member. With current crude and liquids production of around 4.4 million b/d, the country will be the fourth-largest member of the extended group after Saudi Arabia, Russia, and Iraq.
But the addition of Brazil masks a very different reality. Here are four reasons why 2024 could be the end of OPEC.
1. Underproducing African Countries
Tensions are boiling over between OPEC and its underproducing African countries. These nations have experienced prolonged declines in oil, leading to downward adjustments in their production baselines.
Angola, notably dissatisfied, recently declared it would exceed its Q1 quota until the baseline is raised. Similar disputes have arisen with Congo and Nigeria, although the latter managed to secure a baseline increase of over 0.1mn b/d.
While these countries could leave the cartel, their impact would likely be limited.
2. Unreliable Russia
Russia is adhering inconsistently to production cuts. It has deliberately made stated cuts opaque, evident in its recent deviations from production cuts to crude exports (and now products).
An unreliable Russia complicates OPEC’s task of upholding its credibility with the market. Without Russia’s unwavering commitment, the group’s influence over global supply diminishes. Historically, Saudi Arabia has coerced Russia into compliance by threatening to flood the market, but it remains uncertain whether Saudi Arabia is inclined to persist with production cuts.
3. Saudi Arabia Stands Alone
Saudi Arabia and its OPEC partners want different oil prices – as the recent postponement of the OPEC meeting highlights. Saudi Arabia has demonstrated a lower tolerance for oil prices to fall, leading to its unilateral decision earlier this year to cut an additional 1mn b/d. While Saudi Arabia has always flexed its muscle as the largest producer, it now stands alone in the cartel. Other members appear more comfortable with prices falling below $80/bbl.
4. Rising Tensions at the Top
Perhaps most importantly, the tensions between Saudi Crown Prince Mohammed bin Salman and U.A.E. President Sheikh Mohamed bin Zayed al Nahyan have risen on several fronts. The disagreements range from foreign investments to influence in global oil markets and have spilled into the open, potentially reshaping alliances in the oil-rich Persian Gulf. More recently, the UAE felt sidelined as Saudi Arabia pursued direct talks with Houthi rebels in Yemen.
Additionally, clashes over oil production quotas within OPEC+ have strained relations. The UAE has repeatedly requested a higher quota to reflect its increased investments in oil and gas production. It could look to leave the cartel should the tensions between it and Saudi Arabia continue. That would likely spark market fear of an exodus as countries seek to produce in line with their needs rather than Saudi Arabia’s.
What Do Oil Prices Do if OPEC Collapses?
The first three issues alone are unlikely to break up OPEC. But when combined with the fourth, we must consider the risk. A breakup could materially lower the oil price for the next several years – an outcome against the interests of all member states.