OPEC is working on establishing a legal relationship with its partners in the crude oil production cut agreement. This would mean a larger oil cartel controlling possibly more than half of global oil supplies: OPEC currently controls 40 percent.
OPEC’s Secretary General Mohammed Barkindo said the legalization of the relationship is a top priority at the moment, as the group aims at “stability of oil prices on a sustainable basis.” He added that “OPEC as an organization controls nothing more than 40 per cent of the oil market. The issue of stability on a sustainable basis is probably beyond the capacity of an organisation that controls only 40 per cent and that is what led to the Algiers agreement last year and later to the historic first joint meeting of OPEC and non-OPEC members.”
There are three joint bodies working on the structure of this new relationship, Barkindo said, including the Joint Technical Committee, the Joint Ministerial Working Committee, and the Economic Commission Board. They will design a framework to be offered for consideration to the 24 countries taking part in the oil output cut.
The move can be seen as an attempt on the part of OPEC to strengthen its global influence in the face of the rise of the shale patch – a phenomenon that significantly weakened the cartel’s hold over international oil markets. Related: OPEC’s Conundrum: Higher Prices Or Market Share
This became particularly obvious recently, when OPEC and its partners decided to extend their production cut agreement for another nine months, and contrary to expectations this failed to improve prices. Actually, prices fell as U.S. shale drillers continue to add drilling rigs.
Despite the open rivalry, a dialogue between OPEC and shale producers is not out of the question, according to Barkindo. He told media that he met with U.S. industry representatives in Houston and discussed the common responsibility for keeping oil prices under control. This new plan to expand OPEC’s global reach may not sit so well with shale producers, but judging by the market reaction to the latest joint OPEC/non-OPEC move, they don’t have much reason to worry.
By Irina Slav for Oilprice.com
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