When managers of global oil supply meet in Vienna next month, disparities among members of the Organization of Petroleum Exporting Countries will be no less important than ever. Differences go beyond geopolitical rivalries, which are historically, even dangerously tense. And, as always, production scale, and therefore intramural clout, varies greatly.
According to the International Energy Agency, four OPEC countries account for 71% of the production capacity and 91% of the spare capacity among 12 members agreeing to limit production: Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates. And they’re making the biggest sacrifice, producing at 87% of capacity vs. 97% for the other eight. In the politics of production restraint, differences like that get noticed.
Other conditions vary
But economic and political conditions vary among OPEC members, too. Most prominently, Venezuela is collapsing. The country could produce only 1.42 million b/d of crude in April, IEA reports, 550,000 b/d below its implied OPEC quota and falling. Socialist President Nicolas Maduro was reelected May 20 in a sham election. Economic deprivation has bred a humanitarian disaster. National finances are deteriorating, and falling oil production hampers debt service. It also limits payments Maduro can make to military cronies keeping him in power. Unanswerable questions of the moment are how and under what circumstances Maduro departs and when and how Venezuela might restore progress toward its rich potential.
New questions loom about Iran after the US on May 8 withdrew from the 2015 nuclear agreement and said it would reinstate sanctions against the Islamic Republic. According to the IEA, Iranian production averaged 3.82 million b/d in April, exports 2.4 million b/d. The effect of the US move on oil supply remains unclear because of uncertainties about sanction administration and adjustments by Iranian customers. Under international sanctions before the nuclear agreement, Iranian crude exports fell to 1 million b/d, IEA notes, 80% of which went to Asia. Whether a new round of sanctions will bite that hard is uncertain. More fundamental is the question whether a resumption of externally imposed economic distress pushes simmering opposition against theocratic leaders back to the boil or rallies support for the regime around resurgent anti-Americanism.
OPEC’s African members have their own struggles. Among the six of them, IEA observes, only Algeria increased production in April. Angolan output fell to its lowest level since March 2014, at 1.5 million b/d. Production will rise later this year from Total’s deepwater Kaombo field. But Angola needs more new development to offset declines from mature fields. To encourage investment and work, new President Joao Manuel Goncalvez Lourenco must reform Sonangol and suppress corruption.
OPEC’s other major African producers don’t have production quotas but do have problems. The militancy that bedeviled Nigerian output in 2016 has been quiet, despite threats early this year from the main source of trouble, the Niger Delta Avengers. Production fell slightly in April to 1.59 million b/d. The country remains restive. President Muhammadu Buhari continues to face tribal violence in northern and central regions and says he’ll stand for reelection next year.
Production in Libya, still wracked by civil unrest, fluctuates with the closing and reopening of pipelines and export terminals. It averaged 980,000 b/d in April. Opposing political groups control the eastern and western parts of the country, and those groups are splintered. Efforts by the United Nations to reunify Libya have made little progress. Leaders of the House of Representatives, based in Tobruq, and rival High State Council, based in Tripoli, met this month in Rabat, Morocco, to explore action on the latest proposal. Meanwhile, conditions deteriorate for Libyans in general.
Fracture lines
These are all fracture lines within OPEC, ministers of which will discuss continuation of a so-far successful production agreement among themselves and counterparts of 10 collaborating countries on June 22.
One point of agreement seems to remain compelling to all parties, though, in and out of OPEC: With crude prices, $80/bbl feels twice as good as $40/bbl.
