1.
OPEC appears to have been hijacked and dissolved
by Saudi Arabia. Current irrational oil prices, oil glut and stress in the
upstream oil industry are due to irrational approach of Saudi Arabia and
contrary to the basic objective of OPEC. The author advocates creation of
Organization of Petroleum Importing Countries (OPIC) to protect the consumers
from the clutches of Saudi Arabia, and to bid goodbye to OPEC.
2.
OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to
secure fair and stable prices for petroleum producers; an efficient, economic
and regular supply of petroleum to consuming nations; and a fair return on
capital to those investing in the industry.
3. In
mid September 2015, Goldman Sachs forecasted that Oil Prices may go near to $20
as prevailing oil prices (about $45/bbl) did not deter the oil/shale producers
outside OPEC to cut production. As the global oil surplus is bigger than it was
previously thought, the cut in Oil production to manage oil glut is possible at
prices near to $20. Currently, Oil is
around $ 30/bbl.
It raises following
important issues:
(i)
Is oil glut inevitable?
(ii)
Who is responsible for it?
(iii)
Is OPEC meeting the Objective stated
in Para 2 above.
4.
Review of OPEC’s activities post Nov., 2014 reveals that the objectives
of OPEC have been put aside. OPEC is effectively dissolved and
World Oil Markets are being held hostage by Saudi Arabia.
OPEC
(Saudi Arabia) is responsible for the oil glut and current unrealistic, unfair
and unstable prices to the producers. Further analysis of current oil market
clearly brings out that the present approach of OPEC will destroy upstream oil
industry in oil consuming countries, with the single point agenda of
establishing supremacy for Saudi Arabia
5. At
current oil prices, most oil producers outside OPEC are suffering heavy
financial losses but have avoided cutting down production. Due to financial
constraints, they are forced to shelve Exploration & Developmental activities/projects,
which could seriously affect oil production in these oil importing countries in
foreseeable future. Oil Service Equipment Manufacturers are also facing tough
time and it is only a matter of time before many of them may be forced to declare
bankruptcy.
6. Oil
importing countries may celebrate low oil prices as it helps the Governments in
managing their budgets without effort and the consumer on the street gets
Petrol/Diesel/ fuel Gas at low prices. Unfortunately, current oil market is a
honey trap and any celebration is not going to last for long. Governments
and oil administrators/regulators in these countries should be seriously
concerned on the current onslaught on upstream oil industry and irrational
approach of OPEC.
7. The
author strongly believe that the time has come for the creation of Organization
of Petroleum Importing Countries (OPIC) with the following broad objectives:
(a) to
co-ordinate and
unify petroleum policies among Member Countries, in order to
secure fair and stable prices for the
consumers
(b)Create Oil Fund to develop Cavern
(Oil Storage) and build up stocks when prices are low.
(c) Tax the imported Oil
when it is cheap to protect upstream oil industry.
