The members of the Organisation of Petroleum Exporting Countries (OPEC), are expected to convene in Vienna, Austria on the 22nd of June. Among other matters, the primary purpose behind this widely highlighted event is the highly anticipated decision to boost oil production. This meeting comes at a crucial time, when nations are at edge following trade war circumstances, and increasing geopolitical uncertainty. It is nevertheless important to acknowledge the fact that Saudia Arabia—OPEC’s de facto leader—is pursing potent reforms in the new oil world order.
The meeting is the first since the imposition of economic sanctions on OPEC’s thirds largest producer—Iran. Though China and some europeans nations appear to retain their previous economic relations with Iran, the imposed sanctioned have by enlarge created a very dubious and weak position for the Iranian Oil industry. Following the market share vacuum created by the imposed sanctions, other members of OPEC and other oil producing nations are ardently willing to fill this market gap. Hence, Iran has criticised the production increasing policy, citing it as a unilateral move rather than a collective consensus. Libya would also have natural reservations to this oil production policy, as currently it lacks the robust mid-stream infrastructure to exploit this policy. Venezuela is also an opposing member of this proposition. The recent economic and political turmoil have crippled Venezuelas oil producing and exporting framework. Though the production boosting policy hasn't been received well by some of the OPEC members, it is particularly imperative to OPEC’s largest producer, and one of the worlds largest non OPEC oil producer—Russia.
Saudia Arabia and Russia seem to be on the same page, regarding this new policy. The Russian oil industry also wants to contribute to fill the production gap left by some of the OPEC members. One of the main contingency concerning Russia and Saudi Arabia is the increasing price of oil. Since Iran is still a major cheap oil exporter to South Asia, any further global price increments will tempt many other nations to do business with Iran. Furthermore, the relentless boost in U.S shale prospects also poses a grave threat to the Middle East and Russia. Any further increase in global oil prices will exponentially increase the economically viable shale reserves. Hence, the oil glut and price crash of 2014 becomes a very important and useful precedent for OPEC and Russia to follow up. Another great price related threat to the oil industry is the pervasive awareness and increasing use of electric vehicles. Though the industry’s pace might seem to be hindered by the difficult metal mining processes, electric vehicles have had an unprecedented surge in optimism, production and consumption. The scale of EV’s right now would seem minute, as compared to the fossil fuel industry, it undoubtedly poses a long term market.
Although oil price wars are not something completely novel, one aspect that does seem to concern Saudi Arabia this time is the reducing and tightening of the spare oil production capacity. Initially this phenomenon will be rebounding for OPEC and Russia, as the decrease in capacity is poised to increase oil prices amid rising uncertainty. Many sources quote disparate numbers with regard to this issue, however, Saudi Minister of Energy, Industry and Mineral Resources has also conveyed his apprehensions with regard to reducing spare capacity in OPEC. Saudi Arabia proposed the increase of oil production to be in the vicinity of 500,000 bbl/day. This increase will take Saudi oil production very near to its record high, which is 10.5 million bbl/day. The actual increase could be higher than this, as Saudi Arabia has the capacity to increase this number to 12.5 million bbl/day, though this would be less likely, as the increase must be steady and predictable to ensure market stability. Hence, it is likely that Russia and Saudi Arabia agree to a bilateral increase in production with a steady pace. Although short term production is likely to follow Saudi Arabia's predilection, the long term prospects are difficult and futile to predict, as the precarious geopolitical situation and ongoing trade wars are not expected to subside any time soon.
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