Opec faced with waning influence in the global oil markets

Peter Kiernan
Prices will rebound, although not to the $100 per barrel level (Source: Getty)

Generally speaking the winners of the oil price slump have been big oil-importing economies such as the US, Europe, and China, while Opec oil-exporting states and other big exporters such as Russia are among the losers.

The American and European economies are getting a fillip from reduced energy import costs and their consumers are enjoying lower prices at the pump. Meanwhile, oil exporters in the Middle East and elsewhere are enduring slashed export revenue, forcing them to make painful public spending cuts and to manage drawn down financial reserves built up when prices were high.

Low oil price periods also tend to reduce anxiety about the security of global energy supplies: especially this time around as the price slump has mainly been mainly a supply-driven story – being brought about by the US shale oil boom – rather than a demand-driven one brought about by recession (as in 2008-09).

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Indeed, this non-Opec supply driven dynamic has put Opec on the defensive. It's unwilling to cut output to shore up prices out of fear that its members would simply lose market share. Rather, Opec and other exporters are mulling a symbolic output freeze in an effort put a floor on prices at a level they can tolerate.

There is therefore a greater sense of security about oil supply and a broadly held view that we are in a "lower for longer" price environment with energy consuming economies having the upper hand.

But while the oil price plunge has provided welcome relief to oil importers, it hasn't been the dramatic shot in the arm to their domestic economies that had been expected. Households in Western economies haven't been going on spending sprees from saved fuel bills and the outlook for global economic growth is modest at best.

Furthermore, lower oil export revenue may geopolitically weaken petro-states but in most cases oil-dependent regimes have proven to be resilient in the face of low price periods (especially in the Middle East). With some exceptions they adjust, but tend to survive.

Low oil prices have also prompted bankruptcies among the most vulnerable in the US shale sector while at a global level oil companies are winding back upstream expenditure. Lower investment from higher cost non-Opec producers will tighten the supply demand balance down the road, which is what Opec is waiting for.

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Overall, low oil prices have been a modest net positive for Western oil-consuming economies. Meanwhile, Opec is compelled to deal with new dynamics in the oil market that have wound back its influence.

Prices will rebound, although not to the $100 per barrel level seen between 2012 and 2014. Big oil exporters, both inside and outside Opec, will be weakened by the oil price collapse but will survive.

If nothing else, though, they may start to assess the cost of continued reliance of their economies on petroleum revenue, as energy-importing economies assess the cost of petroleum dependency when prices are high. Indeed, Saudi Arabia may be reaching this realisation.