The price of oil has halved over the last eight months due to a global oversupply and slack demand, and so far OPEC has seemed content to leave things as they are. In the past the cartel has cut production to set a floor for falling prices, but this time Saudi Arabia—the only producer capable of lowering output enough to affect prices—has opted to ride out the plunge in order to compete with upstart American shale producers for market share. The Saudis have a sovereign wealth fund large enough to ride out another two decades of prices this low, but other OPEC members are feeling the pain much more acutely. In fact, just this week Nigeria’s oil minister said she might soon call an emergency meeting, the FT reports:
“Almost all Opec countries, except perhaps the Arab bloc, are very uncomfortable,” said [Nigerian oil minister Diezani Alison-Madueke], who as president of Opec is responsible for liaising with member countries and the producer group’s secretary-general in the event of an emergency meeting.If the price “slips any further it is highly likely that I will have to call an extraordinary meeting of Opec in the next six weeks or so”, she said in an interview with the Financial Times. “We’re already talking with member countries.”
OPEC members all depend on oil revenues for huge portions of their government budgets, but few are as well prepared to weather low prices as the Saudis. But those countries are essentially junior partners in OPEC, and without Saudi approval the kinds of production cuts that Venezuela and Nigeria would like to see simply aren’t going to happen. In fact, unless Riyadh significantly rethinks its strategy in this bear market, it seems unlikely that the kind of emergency meeting Alison-Madueke floated will ever happen.The next scheduled OPEC summit isn’t until June, and it’s not clear that the Saudi calculus will change by then. Fissures are widening, and the cartel’s cohesion will continue to deteriorate as its members become more and more desperate.