The new year should bring a sigh of relief for consumers and industrialists, as growing rifts between the Organisation of Petroleum Exporting Countries (OPEC) and Russia, the world’s second-largest oil exporter (after Saudi Arabia) have pushed oil prices below the psychological level of $20 a barrel (bbl). According to some estimates, a $1 drop in oil price increases global purchasing power by $28bn.
More recently, the shape of oil markets has changed markedly as the United States-led world economic downturn and faltering energy demand have finally undermined OPEC’s tight grip on the markets for nearly three years. ABN Amro Bank (Netherlands) commented: “Synchronised global slowdown meant no economy was immune. Demand is collapsing and that will hit oil.”
Between early 2000 to September 2001, the OPEC cartel (controlling two-thirds of total exports) was skilfully “micro-managing” the markets, thus protecting its 11 member’s earnings streams by keeping prices within the band of $22-$28bbl. OPEC basket price had averaged $24.5bbl in the first three-quarters of 2001. The Energy Intelligence Group (US) remarked that OPEC has “evolved into an efficient management system”.
This micro-management strategy led to three rounds of production cutbacks, totalling 3.5m barrels per day (bpd) between February to September, in order to balance global supply and demand.
OPEC’s market share has dropped from 40% of global supply a year ago to 35% now, because of the lower ceiling. Estimates of the OPEC-10’s average output, (excluding the UN-sanctioned Iraq) during the fourth-quarter are between 24.1 to 24.5m bpd, against the official September’s ceiling of 23.2m bpd.
Since the events of September 11, the balance of power in energy markets has shifted in favour of the consumer.
The main problems for producers are bleak growth prospects, over-supply and growing stocks. OPEC has been battling through weakening petroleum consumption, spreading from North America to Europe and Asia-Pacific, and that has reduced its demand growth projections and left oil markets with excess supply. Therefore, the cartel is now virtually powerless to uplift crude prices.
In December OPEC basket price was averaging about $18bbl, below its floor of $22bbl. The cartel’s revenues in 2001 are estimated at between $170bn and $180bn, compared with $225bn in 2000.

Read the full story in the January 2002 edition of African Business Magazine

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