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After global oil inventories remained high and demand for its derivative products remained low, OPEC announced May 15 it would likely extend its production downturn for another nine months. The move, which began in tandem with Russia in January, was designed to increase revenues for oil-exporting countries outside of North America. But its lack of success seems to prove the once-powerful international oil conglomerate is losing its grip on the global market. Financially and politically, OPEC's best days may be well in the past.
The biggest problem for OPEC nations and Russia is that their biggest asset is consequently their biggest liability. These nations, which together comprise the bulk of the world's oil exports, rely on that revenue for an outsized proportion of their national budgets, as The New York Times explained. This makes them more willing to take drastic measures to increase prices, as they have done this year. But it also makes their economies more vulnerable to the fluctuations of an inherently turbulent market.
Things have only become more volatile in the last decade for two primary reasons: New sources of crude oil have turned countries like the U.S. into prominent exporters, adding to global competition. At the same time, the world's demand for oil has stalled or even shrunk, in some cases. As a result, OPEC and Russia are no longer able to bargain with the same effectiveness as they used to. A situation like the U.S. oil embargo of the 1970s is hardly a realistic threat anymore.
According to Robert McNally, a former White House advisor on energy who spoke with the Times, the OPEC of the modern age isn't what it used to be.
"What OPEC, and to some extent Russia, and these other countries have been doing since the price collapse of 2014 is pretending to manage the market," McNally said in an interview with the Times. "In reality, they are simply managing or manipulating sentiment."
Lagging export revenues
While it is clear that fortunes for oil producers have changed dramatically in recent years, some argue that in truth, OPEC had been mismanaging their market control for some time. According to estimates of OPEC's net export revenue from the U.S. Energy Information Administration, the oil cartel still earned more during the 2014 oil price crash than at any point prior to 2000.
OPEC does not publicly disclose financial information, but the EIA estimated that its net export revenue peaked at well over $1 trillion around 2010. In 2014, oil's crash caused earnings to fall below $500 billion. However, this was still an order of magnitude higher than what the group likely made throughout the 1980s and 1990s.
These revenue estimates show that OPEC probably could have leveraged its record-high cash flow better prior to the oil price crash. But it also may allow it to continue sustaining lower profits for some time as it attempts to claw back market share.
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