A Relief for Car Owners: OPEC Fails to Sustain Oil Prices
The meeting of ministers from OPEC+ nations in Vienna on 5 December resulted in decisions that were supposed to stabilise or even increase oil prices. However, this did not happen. The ministers agreed to maintain the previous levels of production and export restrictions until March 2025. Yet, the current global situation would have necessitated stricter limitations, given the declining global demand for oil. The apparent lack of tighter restrictions has led to a gradual decline in oil prices. This is good news for developed countries, especially for consumers of petrol and diesel. However, it is deeply concerning for regimes that finance wars and state terrorism through oil revenues. Beyond OPEC’s willingness for self-imposed restrictions, two additional factors will play a crucial role going forward: Donald Trump’s energy independence policies and the global decline in oil demand. The drop in demand is attributed to two primary factors – the slowdown of China’s economy and the green transition in developed economies. Together, these forces could potentially lead to the collapse of a few authoritarian regimes, akin to the fall of the USSR in the early 1990s.
The OPEC+ meeting in Vienna on 5 December reaffirmed the commitment to maintaining the policy of voluntary self-imposed restrictions. However, this event proved insufficient to alter the trends.
OPEC+ Falters
Firstly, OPEC+ countries have extended additional voluntary production cuts of 1.65 million barrels per day until December 2026, as originally announced in April 2023.
Secondly, these nations have prolonged the previously declared cuts of 2.2 million barrels per day, first announced in November 2023, until the end of March 2025. These reductions will be gradually phased out monthly from April 2025 until September 2026.
It is important to note that this plan is not set in stone. During the 5 December meeting, OPEC+ nations also highlighted that adjustments might be made depending on market conditions. The next scheduled meeting is in May 2025, with three prior meetings having taken place in 2024 – on 1 February, 3 April, and 2 June. Each of these meetings resulted in maintaining self-imposed restrictions and attempting to push oil prices upwards. Nevertheless, the market has reacted otherwise: Brent crude prices, which stood at $91 per barrel in April, have since declined.
The primary challenge facing OPEC+ lies in the significant disagreements among its members. Some countries, such as Russia, have been flouting their commitments to limit production. Russia has managed this more easily by exploiting shadow export schemes to circumvent price caps imposed by G7 nations. For reference, the sanctions cap Russian oil exports at $60 per barrel, while current Urals oil prices hover around $67 per barrel, compared to $71 for Brent crude. Similarly, Iran believes it is entitled to significant leniencies due to losses incurred during years of stringent sanctions.
Such actions by major OPEC+ members undermine the interests of disciplined participants like Saudi Arabia, Kuwait, and the UAE.
Photo: Production quotas by country. The UAE’s limits (1) will increase by 300,000 barrels per day between April 2025 and the end of September 2026. For other countries (2), quotas reflect production levels prior to any additional voluntary adjustments. Source: OPEC
Influences Beyond the Cartel
The limited effectiveness of OPEC+ self-restrictions, coupled with decreasing demand from China’s economy, benefits car owners and industries in developed countries. This puts downward pressure on fuel prices at petrol stations and helps to curb overall inflation rates, which is undoubtedly positive.
In addition to the cartel’s production limits and China’s economic deceleration, two other factors are now coming into play.
Firstly, the return of Donald Trump to the White House. Trump recognises that excessively high oil prices provide undue advantages to authoritarian regimes. He also believes that America has overemphasised green initiatives amidst global geopolitical tensions. His administration has already announced plans to boost domestic oil and gas production. These policies could stress the global market and potentially weaken or dismantle OPEC+ agreements. American oil companies, not OPEC+ members, are likely to benefit from such developments.
Secondly, the European Commission, led by Ursula von der Leyen, unveiled a coordinated strategy on 27 November to reduce the cost of imported fossil fuels. This plan promises to introduce further changes the global oil market too.