Between July 2014 and January 2015 the price of OPEC’s oil “market basket” fell from over $100/bbl to less than $50/bbl, causing considerable hardship to the OPEC countries who rely on oil exports to finance their national budgets – which is all twelve of them. Under these circumstances the logical reaction for a cash-strapped, oil-rich country would be to pump more oil to increase revenues , yet only two – Saudi Arabia and Iraq – actually did so. The remaining ten, which account for over 50% of OPEC’s current total output, seem to have already been pumping as fast as they could or were prevented from doing so by civil war (Libya) or sanctions (Iran) or by other factors outside their control. The implication is that all the talk about freezing OPEC production at January 2016 levels may be just so much hot air. With Saudi Arabia also now pumping at capacity according to Euan’s March vital statistics post OPEC may no longer be capable of increasing production above current levels even if it wanted to.
We begin with a comparison of monthly OPEC market basket prices with total OPEC crude oil production (data from OPEC). The plot runs from July 2014, when the oil price “collapse” began, through March 2016:
Figure 1: OPEC crude production versus OPEC “Market Basket” price, July 2014 through March 2016
OPEC held production relatively stable between July 2014 and February 2015 but then abruptly increased it by 1.6 million bbl/day – about 5% of production – between February and June 2015, and since then production has once again stabilized. The timing of the increase leaves little doubt that it was at least partly a response to the price collapse, but the production increase came almost entirely from two countries, with Saudi Arabia adding 750,000 bbl/day and Iraq adding 850,000 bbl/day. The Saudi increase was probably a policy decision but the Iraqi increase is less easily attributed. It may simply have been a continuation of Iraq’s ongoing attempts to rebuild its oil industry aided by a December 2014 deal with the Kurds which increased the contribution from Iraq’s “northern oil” by 451,000 bbl/day in May 2015.
Now a quick look at OPEC production by country. Figure 2 shows the little fish, with the Y-scale fixed at 3.5 million bpd so that you can tell the countries apart (data from Peak Oil Barrel, which obtains its data from OPEC monthly reports and contains expanded graphs of OPEC production by country if anyone wants to review them). Apart from the fluctuations in Libya and the erratic behavior of Angola and Nigeria the lines are close to flat. There’s no obvious sign of a production response to lower oil prices. (The abrupt rise in Iranian production after January 2016 reflects the lifting of sanctions; the reasons for the equally abrupt decrease in UAE production that effectively offsets it are not known.)
Figure 2: OPEC crude production from smaller contributors, July 2014 through March 2016
Figure 3 now adds the bigger fish. The January-May production increases in Saudi Arabia and Iraq are evident. So is the extent to which Saudi Arabia continues to dominate OPEC production:
Figure 3: OPEC crude production by country, July 2014 through March 2016
Table 1 shows production changes by country between the time the oil price began to crater in July 2014 and March 2016. The countries are sorted by the absolute change in production:
Since July 14 OPEC has increased its combined production by 5%, but without Iraq the number falls to 1%, and if we add Iran we are looking at a small production decrease. Apart from Iraq and Iran only Angola has increased production by more than 5%. Production in Saudi Arabia, Ecuador, Venezuela, Kuwait and arguably the UAE has remained effectively flat while in the remaining four countries it has decreased by up to 18%. Not only were these four countries (Qatar, Algeria, Nigeria and – unsurprisingly – Libya) unable to pump more oil to generate desperately-needed cash, they apparently weren’t even able to stop ongoing production declines.
Which leads to the question of whether OPEC’s strategy of not cutting production to preserve its market share has worked. Generally it has, with OPEC’s share of world production falling only by 0.3% between July 2014 and March 2016, according to OPEC monthly reports. Only three of the twelve OPEC countries, however, have succeeded in increasing their market share – Iraq, Iran and Angola. The rest, including Saudi Arabia, have lost slightly:
And what of OPEC’s future production? This being the oil market it’s unpredictable, but the data presented here suggest that unless an unprecedented and lasting peace breaks out between the squabbling and war-torn MENA countries in the next year or two it’s unlikely to increase. An OPEC production freeze seems inevitable regardless of attempts such as the recent Doha Meeting to negotiate one. A quick glance back at Figure 1 shows that a de facto freeze has in fact been in place since June 2015, but not because OPEC planned it.