Opec marks its 60th anniversary on Monday with its powers vastly reduced and needing the co-operation of non-members such as Russia to try to restore order to an oil market recently battered by the Covid-19 pandemic.
The organisation was founded in Baghdad on 14 September, 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela primarily to counter the power of seven major US and UK oil companies that were at that time dominating the global energy scene.
The goal was to maximise revenues for members that at that time accounted for the majority of the world’s oil production.
Growing US influence
Although membership has now grown to 13 countries, the group is a shadow of its past and fighting for survival as a market influencer amid the devastating impact of the coronavirus on demand and growth of non-Opec production.
It is no longer the cartel that once called the shots in setting prices and production goals.
Growing shale output and political clout from the US is a telling example of Opec’s diminishing role and inability to defend founding members such as Iran and Venezuela, which have seen their production and exports decimated by sanctions from Washington.
The US influence on the group has been on the rise since 2017, when President Donald Trump took office. Trump played a key role in pressuring Saudi Arabia to end a brief price war with Moscow in March and fashion a deal between Opec and non-members, led by Russia, that resulted in historic cuts of 9.7 million barrels a day on 12 April to prop up the market.
The price collapse, triggered by the pandemic, was proving a disaster for shale production, which has turned the US into the world’s leading oil producer.
Key US-Saudi relationship
With Iran and Venezuela now largely out of the picture, Saudi Arabia’s importance within the group has been on the rise, thanks to Trump’s courtship of Saudi Arabia's de facto ruler Mohammed Bin Salman, who is reliant on the US for weapons and protection against archenemy Iran.
As oil prices soared past $70 per barrel in 2018, Trump weighed in on Saudi Arabia to act and increase supplies to ease pressure on US consumers.
“Oil prices are too high, Opec is at it again. Not good!” Trump tweeted on 13 June, 2018 ahead of an Opec meeting.
As members gathered in Vienna on 22 June, the US president wrote: “Hope Opec will increase output substantially. Need to keep prices down!”
US pressure persuaded Opec to raise its output by a million bpd.
Golden years gone
In its heady days in the 1970s, Opec used to rule the roost thank to its share of more than half of the global production.
The use of oil as a political weapon by several members and coordinated output restraints aimed at achieving high prices, paved the way for its fall from grace.
In 1973, Saudi Arabia led other Arab members to try and bring the mighty US economy to its knees by slapping an oil embargo on Washington.
The halt in Arab oil shipments, in retaliation for US support of Israel during the Yom Kippur War, wreaked havoc on the US economy, leading to fuel shortages and causing oil prices to surge.
That proved the catalyst to the eventual explosive growth of the US shale industry and Opec’s diminishing role. Opec members now account for less than a third of world's supplies despite sitting on two-thirds of its oil reserves.
US output more than doubled in a decade to reach over 12 million bpd in 2019, according to the US Energy Information Administration, thanks to high prices and improved drilling technology that made previously untapped basins accessible.
Opec is currently producing around 25 million bpd, down from 30.5 million bpd in April when it ramped up output in the wake of the price war with Russia.
The most urgen
t challenge faced by the exporter group now is to how to survive the impact of Covid-19 and the increasing push towards renewables in the energy transition period.
Despite falling fortunes, Opec secretary general Mohammad Barkindo believes the group will continue to be a balancing force in oil market and a key energy provider.
"Sixty years alone is a monumental achievement for an organisation, but especially so for one representing one of the most volatile commodities – oil.
Co-operation key - Barkindo
"Since the early 1970s, we have seen seven major market cycles, including the latest in the wake of the Covid-19 pandemic, each of which has seen severe and sudden imbalances threaten the oil market and global economic development," he said in a statement on Monday.
"Throughout the organisation’s history there has been one recurring theme that has transcended across the decades and guided the organisation’s work to support sustainable oil market stability: co-operation.
"This has come in the form of building the organisation from the five founders in September 1960 to the 13 members today; evolving dialogues, bilateral and multilateral, with other producers and consumers."
Barkindo said the challenges the oil market is currently facing in sustaining balance and stability "requires participation of all stakeholder".
'No single energy source is a panacea' - Barkindo
"The challenges our planet face require comprehensive solutions — no single energy source is a panacea — and the need to look for cleaner and more efficient technological solutions everywhere, across all available energies.
"When tackling emissions, there are many avenues to take, and we need to pursue them all. There needs to be an appreciation of the nuances in the debate, balancing the needs of people in relation to their social welfare, the economy and the environment," Barkindo added.