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The new direction of OPEC under the international energy changes

The new direction of OPEC under the international energy changes

On September 14, the Organization of the Petroleum Exporting Countries (OPEC) celebrated its 64th birthday. OPEC is undoubtedly one of the most influential organizations in the history of the global oil industry. As an important alliance in the field of global energy economy, OPEC has had a profound impact on the global oil market since its establishment in 1960.

The original intention of OPEC was to coordinate the oil policies of member countries and realize the initiative in crude oil pricing through the quota system, so as to avoid the predatory acquisition of oil resources by Western oil consuming countries, and to ensure the reasonable income of oil producing countries and the stable supply of oil consuming countries to the greatest extent. This mission has enabled OPEC to play an important role in the global oil market for more than half a century, and OPEC has gradually expanded from the original five members to the current 12 members. Especially after the economic boom, market crisis, and scientific and technological progress, OPEC's role is not only to adjust oil production quotas and control the balance between supply and demand in the market, but its decisions have had a significant impact on shaping the global energy landscape and the energy political narrative. For example, in the 70s of the 20th century, OPEC members imposed an oil embargo by restricting oil exports, which caused global oil prices to skyrocket, triggering a serious economic crisis. This event not only changed the landscape of the global energy market, but also redefined global economic stability and geopolitical relations.

The new direction of OPEC under the international energy changes

Reshaping the positioning under the new changes in the energy landscape

The history of OPEC is not only a microcosm of the evolution of the oil industry, but also an important witness to the global economic and political changes. In recent years, as the global energy landscape continues to evolve, the oil and gas industry undergoes significant changes, new technologies and alternative energy sources continue to emerge, becoming a strong competitor to oil and gas, OPEC's dominance in the global energy market is facing unprecedented challenges, forcing it to reposition its market needs and partnerships, and coordinate its internal positions in real time, constantly adjusting its strategy to adapt to market changes. On the one hand, although OPEC has been the dominant force in the oil market, many new players have begun to emerge and show strong competitiveness, especially United States, which has become a major global oil producer after the shale revolution, fundamentally changing the pattern of the world oil market. In addition, Canada, Guyana, Brazil and other countries have been increasing their oil production in recent years, and OPEC's market share is eyeing it. These "mobile oil producers" that can compete with OPEC have a large amount of spare capacity and can respond to OPEC policies by quickly adjusting production, which will affect international oil prices. On the other hand, as the world pays more and more attention to reducing carbon emissions and the clean energy transition, coupled with the sluggish global economic recovery, the decline in oil demand is difficult to hide, which poses a major threat and challenge to OPEC to maintain production levels and market influence.

In this context, although it has been actively responding to changes in the market environment, in the face of the ups and downs of international oil prices, OPEC, which takes stabilizing oil prices as its own responsibility, is becoming more and more "exhausted". At present, OPEC is facing a difficult moment in its history, on the one hand, it is constantly trying to adapt to its weakening voice in the global market and the strong impact at all levels, and timely adapt to the changes in positioning and reshaping by constantly adjusting policies; On the other hand, it is actively striving for a larger market share and regaining its dominant market advantage by investing in new technologies, exploring new partnerships and transitioning to a more sustainable and diversified energy mix.

Weight changes under internal structural contradictions

After the expansion of OPEC, there are huge differences in the geographical distribution, political system, economic development, resource endowment and oil dependence of OPEC member countries, which causes the political considerations and economic needs of the member countries to be very different at different times and under different conditions, resulting in obvious differences in the decision-making process. This has not only exacerbated internal divisions, but has even led to the frequent emergence of the problem of "withdrawal from the group" of member states. At the same time, it also makes OPEC have to repeatedly balance the different interests of each member state when formulating and implementing common policies, especially when the conflict of political interests rises to the main contradiction, and member countries pay more attention to their own short-term interests, resulting in OPEC's economic alliance being particularly fragile. The fragmentation within OPEC has challenged its stability as an economic union, coupled with the long-term political risks of some OPEC members, and internal political events, such as political turmoil, conflicts or major policy shifts, may lead to changes in their oil production and exports, often with knock-on effects on OPEC's policy implementation and the global oil market.

In the face of complex changes in the global energy market and the ever-evolving geopolitical environment, OPEC has become the key to OPEC's future development to ensure the rapid formulation and effective implementation of policies, and to carry out comprehensive weight allocation in terms of output levels, production quotas, and pricing strategies. On the one hand, it is "seeking outward", that is, strengthening cooperative relations with non-OPEC oil producers and constantly expanding the "alliance of interests", especially after the establishment of the "Vienna Alliance" in 2016, the cooperation between OPEC led by Saudi Arabia and non-OPEC led by Russia has been institutionalized and normalized, and joint efforts have been made to respond to changes in the international oil market. On the other hand, OPEC has greater flexibility in the formulation and implementation of relevant agreements, bridges the contradictions and differences between core member countries by revising the baseline and adjusting the scope of production reduction policies, and seeks to "maximize common interests", so as to reduce the cost of internal coordination, speed up the decision-making process, and improve policy effectiveness.

A policy shift may be on the way

In recent years, OPEC has mainly adopted two major strategies in responding to market changes, one is through "flooding", that is, eliminating marginal producers in the market, especially United States shale oil production companies with high production costs; The second is to strive to support prices and maintain the balance between supply and demand in the market through the "big stick of production reduction". Since oil production and investment are inherently long-term, the effect of any short-term stimulus is likely to be "short-lived". While the cut has helped boost oil prices and confidence, it also poses significant risks. In particular, lower production levels could lead to a loss of market share and weaken OPEC's influence. From September 2022 to July 2024, OPEC crude oil production fell by 6.4% and its market share fell by 2.1 percentage points, while United States crude oil production increased by 7.2% and market share increased by 1.3 percentage points, according to the United States Energy Information Administration (EIA). At the same time, the reduction in production will also lead to a sharp decline in the fiscal revenues of member countries that rely heavily on oil revenues, and undermine the sustainable development of domestic economies.

Therefore, in the face of the uneven recovery of the global economy, the uncertainty of geopolitical changes and the many challenges in the process of energy transition, OPEC is deeply aware that the redirection of the global oil market has broader and deeper significance, rather than being satisfied with only solving short-term price stability. In the future, OPEC may adjust its policy tilt to choose a longer-term perspective and a more flexible approach. On the one hand, OPEC's production policy will show greater flexibility, constantly finding a dynamic balance between supporting oil prices and gaining market share, especially in the context of a sluggish economic recovery, and more emphasis on the role of low oil prices in suppressing supply, seizing market share, reducing inflation, and encouraging monetary easing. On the other hand, OPEC will pay more attention to the cooperative relationship with major international oil companies and emerging markets, especially emerging economies in Asia, to strive for greater investment support and market share. In addition, the shift to renewable energy is also a key turning point for the global energy discourse, which will bring new opportunities for OPEC to find a new position in the new energy landscape where traditional energy and new energy are intertwined, so as to better adapt to future changes in the energy market.

The author is a professor at Zhejiang University of Foreign Chinese and director of the Energy and Ecological Security Research Center of the Institute of Environmental Eastern Mediterranean

The new direction of OPEC under the international energy changes

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Editor: Zhang Rui

Proofreading: Jiang Yiyan

Review: Chang Fei Lu Xiangqian

The new direction of OPEC under the international energy changes