But with the demand for crude rising as the impact of the pandemic wears off, that no longer appears to be the case.
“This is definitely a time when OPEC and the OPEC + group as a whole see that they have a lot of influence in the oil markets,” said Richard Bronze, head of geopolitics at consultancy Energy Aspects.
Omicron could put OPEC and Russia on its back. And analysts believe their influence could wane further over the next year as US producers regain ground. But over time, their strength could increase – especially as the climate crisis prompts others to cut back on production, either because of donor pressure or in anticipation of falling demand.
“The only producers who have made the necessary investment [to sustain long-term production] are Saudi Aramco and Adnoc, ”said Ellen Wald, author of the book“ Saudi, Inc., ”referring to state oil companies in Saudi Arabia and the United Arab Emirates. “It tilts the scales towards OPEC. “
With the coronavirus variant in the equation, it seems even more likely. Brent crude futures are trading at nearly $ 71 a barrel after falling 16% in November. There are even rumors that a cut in production could be on the table again to avoid accidentally over-supplying the market and pushing prices down.
“Thursday’s meeting is now in the spotlight for the oil markets,” Bronze said. “I think they’re going to have very limited information.… It will probably depend on whether to suspend the increases planned for January or to cut back.”
For most of the past decade, when oil prices soared, U.S. producers rushed to ramp up production, going into debt to pump out as much crude as possible. That is not happening this time around, as the oil companies prioritize returning money to shareholders and monitoring their results.
“There isn’t as much capital available as there was three, four or five years to get out, drill and grow,” said Anish Kapadia, head of energy at Palissy Advisors.
This gives OPEC more price leverage. It needs them to stay high, but not so high that US growers feel they have no choice but to restart production.
Yet until production resumes in the United States, OPEC policies will remain a key driver of markets. And for now, the group seems determined to err on the side of caution, rather than risk that member countries that depend on oil revenues have to oversell.
American production is expected to resume next year. But the unusual mismatch raises questions as to whether a deeper, more permanent change is at play.
“If you take a step back, 80% of the growth in oil production in the 2010s came from the United States,” said Nikos Tsafos, energy expert at the Center for Strategic and International Studies. “If this machine is broken and we’re not going to extract much more oil from the United States, our whole understanding of what the oil market looks like in the 2020s has to change.”
Players like Saudi Aramco, meanwhile, are striving to increase their production capacity, with a view to supplying oil to markets as long as there is demand.
“They still see huge demand in the developing world, and they still see huge demand for petroleum products,” said Wald, a non-resident senior researcher with the Atlantic Council Global Energy Center, noting the wide range of items that use petroleum as a component.
This underinvestment outside OPEC, as well as the new financial discipline among small shale producers, could have lasting consequences, she continued.
IEA data shows that OPEC and Russia’s share of oil production could drop from 47% in 2020 to 49% in 2030 if countries fully meet all of their pledged climate commitments. By 2050, OPEC and Russia are expected to account for 58% of production.
“Things can change, but there is such a deficit of investment that it will take time to recover,” said Wald. “This puts OPEC and Saudi Arabia in a good position.”
As always, however, the power of the group depends on politics. Much could depend on the ability of its members to continue to get along and maintain a cohesive game plan. The rifts between Saudi Arabia and Russia in March 2020 sent prices plummeting.
“[OPEC+] must act collectively, “Bronze said.” As soon as you get divisions or disagreements, those can really undermine the group’s ability to function and stick to decisions. “