Crude Prices – Is Opec Relevant?

Abstract

The next OPEC meeting will occur on the 20th anniversary of the first oil shock. While the 1993 meeting is unlikely to be as dramatic as the 1973 one, its long-run outcome could be just as great. Indeed, this meeting could mark another anniversary – the end of OPEC's influence on crude oil prices. Oil-exporting nations are in deep trouble. A global recession is suppressing consumption growth and frustrating exporter attempts to boost prices. Financial conditions in exporting nations have deteriorated so much that the Federal Reserve Bank of New York has attempted to lower Saudi Arabia's credit rating. Political stability in at least three OPEC nations is precarious. Future prospects for oil exporters appear even bleaker. New production from several satellites of the former Soviet Union (FSU) will reach the market within a few years, limiting the increase in OPEC sales, and the FSU's incremental output will be augmented by much larger exports from Iraq, where multinational oil companies may once again play a large role in developing Middle Eastern oil. An oil price surge resulting from turmoil in Nigeria will, ironically, only serve to emphasize OPEC's loss of influence. When a cartel-like organization breaks down, the result is usually lower and more volatile prices, and so political or physical production disruptions have a greater impact on volumes supplied. In the future, these disruptions will occur more often because of the worsening financial situation in exporting countries.