OPEC’s Dominance in the Global Oil Market: Could It Be Waning?

The Organization of the Petroleum Exporting Countries (OPEC) has long held significant influence over global oil prices and trends, dominating the international oil and gas world. However, as the U.S. and other powers boost their oil and gas output, OPEC’s dominance in the global oil market is being questioned. A combination of unpopular decisions on international oil quotas and outdated views on the long-term role of oil and gas in global energy has weakened OPEC’s authority, allowing other countries to rise in prominence within the industry.

The Role of OPEC

OPEC+ represents several oil-producing member states, including the founding members of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, and the later members of Libya, the United Arab Emirates, Algeria, Nigeria, Gabon, Equatorial Guinea, and Congo. 

OPEC controls around 40% of global oil supplies, as well as over 80% of proven oil reserves. This has given the cartel significant influence over short-term global oil prices. Within the group, OPEC+ member states collectively agree on how much oil to provide, which has an impact on the global crude supply and, therefore, on the market price of crude. This is aimed at increasing the profitability of oil production. 

OPEC+ can choose to impose strict oil quotas if it sees the global price of crude is too low, to spur a price increase. Changes in OPEC+ oil production levels typically lead to a short-term change in oil prices rather than having a long-term impact. The cartel can also decide to increase production in some countries to counteract low production in others, as seen following the introduction of sanctions on Venezuelan crude in 2018. 

A Supply Shift Could Dethrone OPEC

After two worrying years, the global demand for oil and gas boomed after the Covid-19 pandemic. Prices were pushed higher following the Russian invasion of Ukraine in 2022 and the subsequent sanctions imposed on Russian energy, which led many countries to seek alternative energy supplies. Several geopolitical factors have led to an increase in oil and gas production in the U.S. and other parts of the world, including new oil-producing countries in Africa and the Caribbean. This rapid increase in oil production in non-OPEC countries has led to a shift in the international power structure of the oil and gas industry, which could ultimately reduce OPEC’s influence on crude pricing. 

OPEC+ has previously been able to boost oil revenues for member states by cutting oil production through the introduction of quotas, even when several non-OPEC states opposed these cuts. However, recent predictions by the International Energy Agency (IEA) suggest that there will be a significant increase in global oil production, led by the United States and other countries in the Americas, which will “inflate the world’s spare (oil) capacity cushion”. The global oil supply is expected to surpass demand by as much as 8 million barrels per day (bpd) by 2030, according to the IEA. A recent IEA report suggests that this surplus “could upend the current OPEC+ market management strategy aimed at supporting prices,” which could result in a “lower-price environment.” The anticipated fall in oil demand is expected to be strongly linked to the accelerated rollout of clean energy technologies and a sharp rise in EV sales. 

OPEC+ has introduced several strict quotas in the past two years, aimed at limiting the global supply of crude to push prices up. The group’s production cuts equate to around 5.7% of the global supply of crude. The cartel plans to extend these cuts to 2025 before gradually reducing restrictions. However, oil prices have fallen in recent months, even with the planned supply reductions. This is linked to the increase in oil production in the U.S., with the country reporting record output over the last year, as well as the anticipated fall in oil demand in China – the world’s biggest oil importer. 

Unrealistic Expectations

In addition to a shift in the key players in international oil production, there has been wide criticism around OPEC for being unrealistic in its expectations for the future of global energy. While the IEA predicts an eventual fall in oil demand, as the global renewable energy capacity rises and natural gas is increasingly used as a transition fuel, OPEC leaders repeatedly negate this view. 

Haithaim Al Ghais, the Secretary General of OPEC, recently called the IEA prediction “dangerous commentary, especially for consumers, and will only lead to energy volatility on a potentially unprecedented scale.” Al Ghais believes that oil demand will continue growing for several decades and expects it to reach around 116 million bpd or higher by 2045, contrary to the IEA’s 106 million bpd demand peak prediction for the end of this decade. 

A shift in the countries providing the bulk of the global oil supply and the likely unrealistic expectation of OPEC leaders about the future of the world’s energy supply could result in OPEC having a reduced influence on global oil prices. An oversupply of crude in the coming years will likely diminish OPEC’s role in the international oil industry, even as it extends quotas on crude for its member states. 

Stay Current on the Future of Energy

Reporting on all things energy, we keep our readers ahead of the curve on the latest developments changing the landscape. Subscribe to Shale Magazine to keep current on energy news, sustainability leaps, and economic intelligence.

When you’re on the go, check out our critically acclaimed podcast, The Energy Mixx Radio Show where we feature the latest insights from top leaders in the energy industry.