VIENNA – The Organization of Petroleum Exporting Countries will mark its 60th anniversary on Monday, amid great uncertainty about its future given the acute crisis caused by the coronavirus pandemic and the ever-growing need to slow, or even halt, climate change.
After months of preparations, the events in Baghdad to commemorate the founding conference for OPEC – which took place from Sept. 10-14, 1960, in the Iraqi capital – had to be postponed until further notice due to the COVID-19 pandemic.
“It’s genuinely disappointing not to be able to host the 60th Anniversary,” said the organization’s general secretary, Mohammed Barkindo, in announcing on Sept. 4 the need to postpone the event.
But quite apart from this inconvenience, the virus – having spread worldwide – has resulted in one of the worst years ever for petroleum products with an unprecedented plunge in the consumption of hydrocarbons and in the price of oil.
Over the six decades of its history to bolster the price of crude oil, OPEC has overcome numerous crises that have affected what a barrel of oil can be sold for and, in the end, this has had a significant effect on the incomes of nations within the cartel and has even contributed to revolutions in some of them and wars between others.
In that context, one can point to the 1973-1974 Arab oil embargo, the Iranian Revolution and the 1979-1980 Iran-Iraq war, the 1991 Gulf War and the US-led military intervention in Iraq in 2003.
The volatile price of oil – which is arguably the linchpin of the world economy – also has reacted to all the roiling and turmoil within the international economic environment.
But the sector has never experienced a blow as heavy as the one dealt to it so far this year due to the quarantine of billions of people around the world to try and halt the spread of the coronavirus.
Already in March, the world – and OPEC – was facing an “unprecedented” market collapse with “horrible numbers,” Barkindo said in remarks to the international IHS Markit consulting firm, comments published on the OPEC Web site.
The worst month was April when, according to the International Energy Agency, the world consumption of crude oil plummeted by 29 million barrels per day.
On April 20, the price of West Texas Intermediate Crude, the US benchmark, fell into negative territory, an historic and never-before-seen occurrence. Simultaneously, Brent Crude, which in January 2020 had been priced above $70 per barrel, fell to below $20 per barrel.
Despite the fact that the so-called “OPEC+” – the 13 members of OPEC and 10 allied producers, including Russia – agreed on an historic supply cutback, equivalent to 10 percent of world production, the market has not yet achieved a new equilibrium.
The rhythm of the recovery seems to be slower than anticipated, with growing risks of a prolonged wave of COVID-19, the OPEC+ interim committee warned a month ago.
In a tele-conference, that entity warned of persistent fragility in the oil market amid “significant uncertainties.”
Crude prices have recovered only part of the ground they lost earlier in the year. Brent Crude climbed above $45 per barrel in July, but in recent days it has dropped again to below $40 per barrel, about half the level the exporting countries need to cover their budgets, virtually all of which are heavily dependent on oil revenues.
In addition to that difficult situation, there is the clear need to scale back on fossil fuel consumption to reduce greenhouse gas emissions.
With the growing awareness and urgency of the need to take effective action against climate change, petroleum – which during the era in which OPEC was founded was probably the world’s prime raw material and the fuel of economic growth – has fallen into disfavor, although experts still say that the planet will require billions of barrels of “black gold” to fuel the global economy in the coming decades.
Along those lines, Barkindo has shifted his stance from what he was saying just a little over a year ago, when he remarked that the youth demonstrations against the climate crisis were “unscientific” and based on a “false narrative,” and thus constituted the major threat to the petroleum industry.
The pandemic has proven, beyond all reasonable doubt, that the world needs to review the architecture of energy, climate and change and possibly geopolitics, Barkindo said recently during an interview published on the OPEC Web page.
Although the 13 full OPEC members together control 80 percent of the world’s crude reserves, many see this group as having been weakened with the loss of much of its market.
Many of the producers are facing serious problems, with Venezuela and Iran in the forefront of those confronting assorted difficulties, their oil industries having been significantly eroded by economic crises and US sanctions. Socio-political convulsions are also besetting Libya, Algeria, Iraq and Nigeria.
In 2016, OPEC declared itself unable to control crude prices alone and inaugurated the OPEC+ alliance with 24 members controlling 60 percent of world oil production.
But even with these new allies, the cartel has reached the limit of its abilities amid the COVID-19 crisis and Barkindo says that in the future OPEC will require more alliances and strengthened “multilateralism.”