{"id":5208,"date":"2018-12-07T12:06:58","date_gmt":"2018-12-07T12:06:58","guid":{"rendered":"http:\/\/www.styledeals.co.uk\/blog\/who-really-influences-the-price-of-oil\/"},"modified":"2018-12-07T12:06:58","modified_gmt":"2018-12-07T12:06:58","slug":"who-really-influences-the-price-of-oil","status":"publish","type":"post","link":"https:\/\/www.styledeals.co.uk\/blog\/who-really-influences-the-price-of-oil\/","title":{"rendered":"Who really influences the price of oil?"},"content":{"rendered":"\n
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Opec, the Organization of the Petroleum Exporting Countries, has certainly had its share of criticism over many years. <\/p>\n

President Trump recently accused the group of “ripping off the rest of the world” and keeping oil prices “artificially high”.<\/a><\/p>\n

It has sometimes been charged with holding the world to ransom – notably in the mid-1970s when it cut supplies and the price tripled. <\/p>\n

But as Opec energy ministers meet in Vienna, does the group really wield that much influence any more?<\/p>\n

Controlling production<\/h2>\n

They are being joined by some non-member oil-producing countries, notably Russia.<\/p>\n

The group wants to stabilise or increase crude oil prices, which turned sharply downwards in early October. <\/p>\n

The main tool it has is to manage its own production levels – either by cutting if it wants prices to rise or increasing supplies if it wants them to fall, at least to a point that would not cause prices to collapse.<\/p>\n

Opec’s presence in the market is certainly big enough to make an impact. <\/p>\n

It accounts for more than 40% of global crude oil production.<\/p>\n

It was higher – more than half in the early 1970s – but the current figure is still a substantial share. <\/p>\n

But the other 60% of the industry also matters. <\/p>\n

Two non-Opec countries are especially important in different ways: Russia and the United States. <\/p>\n

Russia’s influence<\/h2>\n

Russia has contributed to Opec’s current effort to move prices higher.<\/p>\n

It began in 2016 with an Opec decision “to implement a production adjustment”, which means a cut of 1.2 million barrels a day. <\/p>\n

Crucially, Russia and a number of other non-Opec members joined in the effort with their own commitments to restrain production. <\/p>\n

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Following that, prices did gain with the main international price, Brent Crude, reaching $86 (\u00a367) a barrel in early October – it was below $50 a barrel in the period before that decision. <\/p>\n

That is not to say the decision by Opec and partners was the only factor. <\/p>\n

Political turmoil in Opec countries Venezuela, Libya and Nigeria has made it impossible for them to produce the amount of oil that in theory they could. <\/p>\n

Iran sanctions<\/h2>\n

Iran has been hit by the reimposition of US sanctions<\/a> over its nuclear programme.<\/p>\n

The possibility that Iran’s oil might be unavailable to the global market – or that there would be less of it – has been an important factor pushing prices higher this year. <\/p>\n

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\n Iran is continuing to sell oil to some countries
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But some of Iran’s biggest customers – China, India and Japan – have been given temporary exemptions and can continue to buy Iranian oil for now without being hit by US action. <\/p>\n

As a result, prices actually turned down as there was less demand for oil from other producers than had been expected.<\/p>\n

That said, the rise in prices since late 2016 did owe something to the agreement between Opec, Russia and others. <\/p>\n

Within Opec, Saudi Arabia has been key. <\/p>\n

According to estimates from the International Energy Agency, Saudi Arabia accounts for more than a third of Opec’s total production capacity and more than half of the group’s spare capacity. <\/p>\n

That is an indicator of the extent to which production is being restrained. <\/p>\n

Important though Saudi Arabia is, it was reluctant to act alone over prices. <\/p>\n

So it expected, as it generally does, other Opec members to make some sacrifice, but it also wanted Russia involved. <\/p>\n

US largest producer<\/h2>\n

There is a third very large player in the global business; the United States, currently the biggest producer of all. <\/p>\n

The US is a very different beast from the others. <\/p>\n

Oil is produced by private industry making decisions on the basis of what is profitable.<\/p>\n

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Russia’s big oil companies are close to the government and the dominant firm in Saudi Arabia – Saudi Aramco – is state-owned. <\/p>\n

American oil producers do not co-operate with Opec to manage prices, because that would be illegal under US anti-trust or competition law.<\/p>\n

But something has happened in the US in the last decade or so that has transformed the global industry – the rise of shale oil. <\/p>\n

There are two important aspects to this.<\/p>\n

Shale oil impact<\/h2>\n

The exploitation of a relatively new type of resource has reversed a long-term decline in US oil output. <\/p>\n

The country still has to import oil. But now it can meet two-thirds of its own needs whereas just over a decade ago, it was one-third. <\/p>\n

Also shale can respond more quickly to a changing market. <\/p>\n

It does not need such large-scale investment as conventional oil. The investor can get their money back much more quickly, so shale output can be boosted more rapidly when prices start to rise. <\/p>\n

Shale was one of the reasons that oil prices fell sharply after mid-2014.<\/p>\n

One possible reason Opec did not respond sooner than it did was a desire on the part of some members, notably Saudi Arabia, to see US shale producers squeezed by lower prices. <\/p>\n

Opec does still matter, but it is far from being fully in charge of the global oil market.<\/p>\n

And in the longer term, if global efforts to address climate change mean we become less reliant on oil – a big if perhaps – then Opec will matter a great deal less. <\/p>\n

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