Opec turns 60 at 'critical moment' for virus-hit oil

London

THE Organization of the Petroleum Exporting Countries (Opec) faces a critical moment in its 60-year history with Covid-19 crushing crude demand and prices, discord among its members, and threats from a world seeking cleaner fuels. Founded on Sept 14, 1960, by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela which sought to control crude oil output, Opec currently comprises 13 members including nations from Africa and Latin America.

The 60th anniversary "comes at a critical moment in its history", UniCredit analyst Edoardo Campanella said. "Its ability to steer the oil market in its favour has never been put in question to the extent it is now," he noted.

The Vienna-based institution convenes for regular meetings to assess the state of supply and demand in the marketplace, and its pronouncements can still spark major price swings. That ability has dimmed in recent years however, prompting it to join forces with 10 non-Opec producers including Russia to curb their collective output. Opec+ essentially wanted to counter surging energy supplies from shale rock in the US and help clear a stubborn supply glut on world markets.

Today, Opec pumps about one third of global oil - but Opec+ accounts for almost 50 per cent, giving it greater clout. The larger Opec+ in March failed to agree on a new strategy - with Russia refusing cartel kingpin Saudi Arabia's request to cut their collective output and combat a virus-fuelled slump in crude demand. In response, top global exporter Saudi slashed its prices and raised output to preserve market share in the face of Russian opposition.

The Saudi-Russian price war, in tandem with the worsening Covid-19 pandemic, sent oil prices off a cliff. After the unprecedented market crash, Opec+ in May slashed up to a fifth of its output - a move that triggered a sharp rebound in crude prices to current levels around US$40 per barrel.

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Added to the supply backdrop, the US, now the world's biggest oil producer, curbed the pace of costly shale extraction.

Rystad Energy analyst Paola Rodriguez-Masiu, while noting that Opec has lost market share in recent years, said the cartel still has an important role to play because it possesses the largest amount of accessible crude. This meant that extracting its oil resulted in fewer carbon emissions, she said. "I would argue that Opec would become more and more important" in the future, she added. AFP