William Lamond, senior investment manager at Canaccord Genuity Wealth Management, says Yes.
November 2014 – Saudi Arabia (Opec’s only true swing producer) decided to defend market share instead of cutting production to support pricing. The belief? A short-term weakness in crude oil prices would significantly reduce non-Opec supply. Sixteen months later, crude oil prices have fallen, but non-Opec supply has grown over the period due to significant cost control and technology improvement – although there has been a small fall in production recently. Opec member economies have been noticeably impacted with negative growth and/or fiscal budget cuts. This has led to discord within the cartel, with the higher oil cost producers such as Venezuela and Nigeria questioning the current policy. And that’s married to a resurgent Iran, which could, in its own words, add further low-cost supply to the market to the detriment of its fellow members. All this has only added to the discord and eroded Opec’s credibility further, culminating in the breakdown of talks at Doha at the weekend.
Professor David Elmes, who leads Warwick Business School’s Global Energy Research Network, says No.
No – but only because Opec has always faced challenges in making difficult decisions at the right time. Opec is a group of major oil and gas producing countries who argue that it’s right for them to have a role in controlling production and therefore prices, as the energy they supply is vital to the world economy. But who gets the money from increased production or who takes the hit when production is cut has always been for its members to argue about. Now, it’s more complicated, as Opec is trying to involve other oil producing countries such as Russia while also dealing with different views between its members. A decision at this meeting looks to have been scuppered by Saudi Arabia and Iran having different views of how much oil Iran can add to oversupplied markets. It will take more than a couple of meetings for Opec to bring this new group to a decision, but it’s also important that such discussions are taking place.