Reasons why OPEC+ won’t last forever

Oil&Gas Materials 27 April 2021 10:07 (UTC +04:00)
Reasons why OPEC+ won’t last forever

BAKU, Azerbaijan, Apr.27

By Leman Zeynalova – Trend:

OPEC+ deal could be maybe extended for several more years, but in the end geopolitical and economic reasons and changes will break this bromance, maybe not as a full divorce but slowly, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY, and Global Head Strategy Risk at Berry Commodities told Trend.

He was commenting on Russian LUKOIL’s remarks about the possibility of extending the OPEC+ forever.

“In my honest opinion, no geopolitical or energy alliance is forever! The underlying reasons for OPEC+ is still a geopolitical strategy of both Russia (Putin) and Saudi Arabia (MBS), which have rightly understood that cooperation at present brings more to the market and to their own revenue base than a full out competition. However, where sometimes the main issues will be is that Russia is looking at the world in a much more diverse way, including China, Iran, Venezuela and others in their own goals. Saudi Arabia at present is still looking for its future geopolitical role, as the end-of-oil could bring major changes. At present OPEC+ is a marriage of convenience, an arranged marriage based on oil revenues and price settings, while being able to confront market destabilization, US shale and others. These latter factors will change in the coming years, so also the marriage proposal.

First define the market! If the market is oil producers (countries and companies) than this will partly destabilize the market, putting pressure on oil price fluctuations and volatility. So, most companies in general (also OPEC) will be happy to continue with OPEC+. When however taking a look at traders, volatility is their bread and butter. High volatility increases options for profit (or loss), so a breakup of OPEC+ is playing in the hands of traders. A stable market is a boring market. Keep also in mind that most NOCs (Aramco/ADNOC/Gazprom) or IOCs (Shell, BP, etc), are major oil and gas traders. When looking at 2020 IOCs made money in trading, so volatility could be to the advantage,” said the expert.


Follow the author on Twitter: @Lyaman_Zeyn