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For decades, OPEC, the Organization of the Petroleum Exporting Countries, has reigned supreme as the puppet master of the global oil market, wielding its production quotas like levers to control prices and fuel economic booms and busts. But cracks are appearing in the cartel’s once-impenetrable facade, and the tremors are originating from an unlikely source: Angola, a nation long considered a loyal foot soldier in OPEC’s ranks.
Angola’s withdrawal from OPEC has reverberated through the oil industry. The decision, announced on December 21st by its Oil Minister Diamantino Azevedo, stems from disagreements over production quotas and a perceived lack of benefit for Angola in continued membership. This unexpected move could have significant implications for global oil markets and the future of OPEC itself. To understand why, let’s delve deeper into the reasons behind OPEC’s weakening grip and Angola’s bold move.
A Cartel Under Pressure
OPEC’s historical influence stemmed from its ability to collectively control around 40% of the world’s oil production, allowing it to manipulate supply and dictate prices. However, this stranglehold has loosened in recent years due to several factors:
1. The Rise of Shale
The shale oil boom in the United States, particularly in states like Texas and North Dakota, has significantly boosted domestic production, challenging OPEC’s historical dominance. While estimates vary, US crude oil output has roughly doubled since 2010, reaching around 11-12 million barrels per day by 2023. This surge has chipped away at OPEC’s market share, which held around 40% in the past but now faces increased competition.
While the rise in US production has undoubtedly made OPEC’s production cuts less impactful on overall oil prices, it’s important to acknowledge that the global oil market is complex and influenced by various factors. Other key determinants include global demand, geopolitical events, and the growing presence of alternative energy sources. Therefore, attributing the entirety of the price impact solely to US production would be an oversimplification.
2. Renewable Energy
The global push towards renewable energy sources like solar, wind, and geothermal is slowly but surely chipping away at oil demand. While the transition is gradual, it represents a long-term threat to OPEC’s dominance. According to the International Energy Agency (IEA), renewable energy sources accounted for 29% of global electricity generation in 2020, and are expected to reach 33% by 2025. Moreover, the IEA projects that renewable energy will surpass coal as the largest source of electricity generation by 2026. This trend will reduce the dependence on fossil fuels and lower the demand for oil in the future.
3. Internal Discord
OPEC’s 13 member countries have diverse interests and agendas, often leading to disagreements on production quotas and pricing strategies. This internal friction weakens the cartel’s ability to present a united front and effectively influence the market. For instance, in 2020, a dispute between Saudi Arabia and Russia over how to respond to the COVID-19 pandemic and the collapse of oil prices led to a brief but intense price war that sent oil prices plummeting to historic lows. Although the two countries eventually reached a deal to cut production, the episode exposed the fragility of OPEC’s cohesion and credibility.
Angola, once a steadfast OPEC member, has felt the brunt of these challenges. The country’s oil production, which peaked at 1.8 million barrels per day in 2008, has steadily declined to around 1.2 million barrels per day due to aging infrastructure and declining reserves. OPEC, in response, imposed production cuts on Angola, further hindering the nation’s economic growth.
This, coupled with Angola’s growing domestic energy needs and its desire to attract foreign investment in its non-oil sectors, led to increasing frustration with OPEC’s restrictive policies. The decision to leave the cartel, therefore, can be seen as a strategic move to regain control over its oil resources and pursue a more independent economic path.
Angola’s oil sector accounts for about 50% of its GDP, 80% of its government revenue, and 90% of its exports. However, the country also faces high poverty, unemployment, and inequality rates, as well as a lack of diversification and development in other sectors. Angola’s dependence on oil has made it vulnerable to external shocks and fluctuations in oil prices, which have been volatile in recent years due to the factors mentioned above.
By leaving OPEC, Angola hopes to boost its oil production and revenue, as well as attract more foreign investment and technology to revitalize its oil industry and explore new fields. Angola also aims to diversify its economy and reduce its reliance on oil by developing other sectors such as agriculture, mining, tourism, and manufacturing. Angola believes that these steps will help it achieve more sustainable and inclusive growth, as well as improve its social and environmental conditions.
Angola’s departure is a significant blow to OPEC’s authority. It sets a precedent for other member countries to potentially follow suit, especially if they feel their interests are not being adequately addressed. This could lead to further fragmentation within the cartel, weakening its ability to control prices and potentially triggering greater volatility in the oil market.
Angola is not the first country to leave OPEC. In the past, Ecuador, Gabon, Indonesia, and Qatar have also exited the cartel for various reasons, such as political disputes, economic difficulties, or strategic goals. However, Angola’s exit is different in scale and impact, as it is one of the largest and most influential oil producers in Africa and the world. Angola’s exit could also inspire other African countries, such as Nigeria and Algeria, to reconsider their OPEC membership and seek more autonomy and flexibility in their oil policies.
Angola’s exit could also have geopolitical implications, as it could affect the balance of power and influence among the major oil-producing regions and countries. For example, Angola’s exit could reduce OPEC’s leverage over China, one of the largest oil importers and Angola’s main trading partner. Angola’s exit could also increase the competition and cooperation among the US, Russia, and other non-OPEC oil producers, who may seek to fill the gap left by Angola and gain more market share and influence.
Future of Oil
The oil industry is at a crossroads. The traditional OPEC-dominated model is facing unprecedented challenges, and Angola’s exit is a symptom of this changing landscape. The future of oil prices and the global energy market will depend on several factors, including:
1. The Pace Of Renewable Energy Adoption
Driven by environmental concerns, technological advancements, and policy incentives, the world is steadily transitioning towards a greener and cleaner energy future. While challenges remain in terms of affordability and accessibility, renewable energy sources are rapidly becoming more competitive and offering a viable alternative to fossil fuels. The International Energy Agency (IEA) projects a significant rise in renewable energy’s share of global electricity generation, with estimates ranging from 42-48% by 2030 and 55-67% by 2040, depending on future policy efforts and global economic growth. This shift will undoubtedly impact oil demand over the long term, potentially reducing its value. However, predicting the exact pace and extent of this decline remains complex, as oil is likely to remain relevant in sectors like transportation and industry for the foreseeable future.
2. The Continued Growth Of US shale Production
The US shale revolution has significantly reshaped the global oil market, propelling the US to become a major oil producer and exporter. While not yet the largest globally, the industry’s resilience and adaptability have helped drive US crude oil production to an estimated 13.2 million barrels per day by 2025 and 14.6 million barrels per day by 2030, according to the US Energy Information Administration. This increased supply, alongside other global factors, could exert downward pressure on oil prices in the long run, though the precise impact remains uncertain.
How OPEC Adapts To Its Diminished Influence
OPEC faces a dilemma: how to balance its interests with the interests of the global oil market. On one hand, OPEC wants to maintain its market share and revenue by keeping production high and prices low. On the other hand, OPEC wants to preserve its relevance and authority by keeping production low and prices high. OPEC will have to find a way to reconcile these conflicting goals and cooperate with other oil producers, both within and outside the cartel, to ensure stability and sustainability in the oil market.
One thing is certain: the era of OPEC’s absolute control over oil prices is drawing to a close as Angola’s exit may just be the first domino to fall, signaling a new chapter in the story of the world’s most coveted resource.
What do you think of Angola’s exit from OPEC? Do you think it will have a positive or negative impact on the oil industry and the world economy? Do you think other OPEC members will follow Angola’s example and leave the cartel? How do you see the future of oil prices and the global energy market? Share your thoughts and opinions in the comments section below.