Various solutions are raised, ultimate resolution is still in the works
Written by: Grace Cheong
RIYADH: Nations seem split over focusing on short-run or long-run issues yet are willing to agree for emphasis on addressing fluctuating oil prices with increased supply witnessing oil at 69.3USD per barrel Monday afternoon, and a slight drop to 68USD per barrel as of Tuesday evening. OPEC plays a critical role in the oil market, taking up 38.2% of the oil production market as of 2020. However, nations may need to seek a broader solution, such as opting for the multilateral summit proposed by the USA or even adopting the new council proposed by Saudi Arabia and its allies.
The USA claims that solutions should lean towards the demand side of oil, hence a need to find solutions by creating partnerships with individual firms in order to carry out research to report and forecast the oil market, benefitting OPEC and the entire community. This could be in the interest of the Kuwait bloc which aims to focus on stabilising the market by analysing demand for oil as well as “understand[ing] undercurrents and predict[ing] freak events”, as per Saudi’s call for the need of interstate communication. The feasibility of this remains up to question, as the market remains fluid and is not quite simply reducible to purely demand and supply trends, but also include geopolitical factors. Prediction of these trends can also be an additional challenge due to susceptibility to oil shocks - sudden changes in supply or demand, and the evolving pandemic situation.
Within the committee, Saudi and its allies suggest the reallocation of oil revenue through a neutral joint committee called COPC which they claim is “immune to conflicts”, more details of which are needed. Riyadh claims that there is “no point in being dominant if OPEC lacks the ability to cooperate”, principally in agreement with the USA’s suggestion to hold a summit which encourages cooperation with other state and non-state actors who are not OPEC members. These parties wield large influence within the global oil market, including China and the USA who held 14.7% and 4.6% of the global share respectively in 2019. In the short run, Venezuela agrees on the need for collaboration while Angola supports Riyadh’s focus on stability. Although these are pressing issues, further elaboration on the proposed committee is needed to prove its practicality and feasibility in the long run since the oil market is already largely controlled by oil producers and consumers.
OPEC's ability to ensure benefit for the global market while protecting its members' interests is challenged as nations seek to move beyond its scope, even disagreeing on what decisions should be made next. This is understandable, especially when countries do not comply with OPEC quotas touted by Venezuela and Russia.
The feasibility of relying on existing quotas as proposed by the two countries raises other questions regarding implementation and usefulness, when quotas have already proven to be limited in effect. Nations could consider making the suggestion of the new council into a reality to ensure stability of oil prices so that the committee and the greater market can benefit as a collective. However, mitigation measures must be adopted in the meanwhile to ensure that neither short-run or long-run objectives are neglected as countries attempt to reach a consensus, a goal that requires quick action to fulfill and a stepping stone to ensuring the committee’s protection and profits.
References
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Louidis, Nick. (2021). OPEC’s influence on Global Oil Prices. Investopedia. https://www.investopedia.com/ask/answers/060415/how-much-influence-does-opec-have-global-price-oil.asp
Perry, George L. (2013, August 14). Why is the Price of Oil so Hard to Predict? The Brookings Institution. https://www.brookings.edu/opinions/why-is-the-price-of-oil-so-hard-to-predict/
Rapier, Robert. (2020, June 26). World’s Top 10 Oil Producers and Consumers. Forbes. https://www.forbes.com/sites/rrapier/2020/06/26/the-worlds-top-10-oil-producers-and-oil-consumers/?sh=55df4e7e2303
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