OPEC celebrates 60 years in the midst of the oil crisis

Like many birthdays this 2020, the Organization of Petroleum Exporting Countries (OPEC) is celebrating its day with security measures, uncertainty and new plans on the table to address the challenges of this "new normality". After months of preparations, the events to commemorate the founding conference of the OPEC in Baghdad, which took place in 1960 in the Iraqi capital, had to be postponed until further notice owing to the COVID-19. The confinement of millions of people due to the coronavirus crisis has led to the worst export figures in history. The fall in demand has left historic moments in which the barrel has reached negative values. The global pandemic is compounded by efforts to curb climate change. These are the two new factors that will change the way the organisation operates in the future.  

In the oil sector, there is no memory of such a severe blow as the one experienced in April this year during the confinement. Not even during the oil embargo of the Arab countries (1973-1974), the Iranian revolution, the war between Iran and Iraq (1979-80), the Gulf War (1991), or the US military intervention in Iraq (2003). During the month of March the headlines announced an "unparalleled collapse with horrific numbers". But the worst month was April, when the International Energy Agency (IEA) announced that the world was ceasing to burn an average of 29 million barrels of crude oil per day (mbd). On the 20th of the same month, the price of West Texas (WTI) oil reached negative figures never before seen in history.  

There are many anecdotes to be told after sixty years of life, although right now conversations are needed to shed light on the mystery of how to stabilise prices. For the confrontation between Saudi Arabia (a founding member of the OPEC) and Russia (an oil exporter outside the OPEC) is dismantling the little stability that has remained on the market. During the crisis all the oil-producing countries raised the idea of lowering production to stabilise prices. But instead of all acting as a team, Saudi Arabia increased its production with the aim of reducing the prices per barrel and Russia imitated its steps in order not to be left behind. 

To save the economy, some governments, like the US government, bought oil to increase their reserves and avoid job losses. Donald Trump, faced with the regional dispute between Russia and the most influential OPEC country, tried to reach an agreement to stabilize the situation. The main consequences of this price dispute are being suffered by Venezuela and Mexico, which are also oil exporters but are unable to make a profit at current barrel prices. It seems that the countries do not trust each other and, at least the oil exporters, will have to reach an agreement in order not to sell their black gold off. 

OPEC is made up of oil-producing countries such as Algeria, Angola, Gabon, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of Congo, Saudi Arabia, United Arab Emirates and Venezuela. Initially they were responsible for regulating the price of the Brent barrel. But these practices made the market accuse the organization of structural "monopoly". Since then, they have changed their way of acting, establishing maximum production limits, which usually means closing the oil taps when the prices fall and opening them when they rise. 

In 2016, the organisation declared itself unable to control the crude oil prices that had collapsed due to the shale oil (metamorphic rock) boom in the United States, and established cooperative relations with other countries through the formalisation of the OPEC+ alliance, with 24 members and 60% of world crude oil production. The organisation has now created the "OPEC+" concept which includes 10 allied producer countries (including Russia). It is this new organisation that has been forced to deal with the COVID-19 pandemic and has agreed to a historic supply cut equivalent to 10% of world production to rebalance the brutal fall in demand that occurred during the lockouts.

"The pace of recovery appears to be slower than anticipated, with increasing risks of a prolonged wave of COVID-19," an internal OPEC+ committee warned a month ago. Crude oil prices have regained only part of the lost ground. Brent and OPEC benchmark crude oil, still priced above $45 in July, but in recent days have fallen to less than $40, about half of what exporting countries need to balance their budgets.

Added to this difficult situation is the need to do without fossil fuels in order to reduce greenhouse gas emissions. As a result, oil, which was a coveted commodity when OPEC was founded, has fallen out of favour, although experts predict that the world will still need many barrels in the coming decades to complete the energy transition. 

Mohammed Barkindo, the OPEC secretary general, has been forced to change his position on climate change in little less than a year. Barkindo considered that the mobilisations on the climate crisis were "unscientific and had a false narrative". But today he acknowledges that "this pandemic has shown beyond all reasonable doubt that we need to review the architecture of energy governance, climate change and possibly geopolitics". 
 
Although the 13 members of OPEC today together hold 80% of the world's oil reserves, the group has lost market share due to its policy of reducing extractions. Many of them face serious political problems, with Venezuela and Iran at the forefront, two founding countries whose oil industries have collapsed due to economic crises and US sanctions. Furthermore, other socio-political conflicts are besetting Libya, Algeria, Iraq and Nigeria. The health crisis has pushed the oil states to the limit of their possibilities and Barkindo has already predicted that the future is very complicated and more alliances and a strengthened "multilateralism" will be needed to address the energy challenges.