OPEC seems set to retain its economic position of leverage, though new oil field discoveries may weaken it in the medium term, writes Ahmed Mustafa* As the Organisation of Petroleum Exporting Countries (OPEC) assured interested onlookers that its output ceiling will stay at the current level of 28 million barrels per day (bpd), some were questioning OPEC's relevance in light of developments in the global energy market. A recent big oil discovery in the deep waters of the Gulf of Mexico added to speculations about the role OPEC plays, as more production from non-members outweighs its dominance. But strong indications are there to support the argument that the producers' cartel would stay effective for years to come, as well as alleviate fears of global oil reserves declining soon. The 10-member countries of OPEC -- excluding Iraq -- agreed in their meeting in Vienna, on mid September to keep production as it is, though oil prices were declining from the mid-July peak of over $78 per barrel to around $61 . Producers are aware, as one of the ministers participating in the Vienna meeting informed me, that price hikes have nothing to do with market fundamentals and there are abundant amounts of crude in the market surpassing demand. Prices began to fall with the end of the summer driving season in the US with less speculation about politically volatile issues like Iran's nuclear programme and the war on Lebanon. This doesn't mean that OPEC is no longer capable of manipulating the market. Ministers had in their minds the possibility of prices falling to $40 a barrel, as some analysts predicted recently. The organisation is monitoring the market and can take emergency steps -- like a production quota cut -- to fend off a price collapse. Cooperation between OPEC and non- member big producers like Russia and Norway on previous occasions, indicates that the cartel acknowledges the fact that it's not the sole player in the energy market and that other big producers see their interest in joining forces with the cartel to seek stability in energy commerce. The last two years witnessed much talk about the global oil sector as prices headed up and increasing energy bills bit Western consumers. An outcry from US experts about the global oil reserves peaking and beginning to decline was echoed elsewhere, some even speaking of the "end of oil". The last month's discovery in the Gulf of Mexico, announced by US oil company Chevron, could add between 3-15 billion barrels to American reserves, in addition to anticipated increases in production of new producers like Angola, Brazil, and countries of the Caspian Sea basin. Still, some old fields, like Saudi's biggest field that supplies almost half of its production, are being wound down. Developing untapped reserves in Libya, Sudan and other areas would make up for declining production capacity elsewhere. In all, it is safe to consider oil a strategic commodity in ready supply for decades to come. More than two decades ago, Western oil companies announced a huge discovery in Kazakhstan, prompting speculation about OPEC's future role as a producers' cartel having hegemony over the global oil market. Since then, Caspian oil reserves have come into stream, with another big discovery more than a decade ago, again in Kazakhstan, that added 18 billion barrels to global reserves. Russia increased production to become the second biggest global exporter of oil with Norway the third largest. Non-OPEC production, thus, is on the rise, yet the cartel remains central. The latest US find needs at least five years to begin reaching the market, a time by which American energy demand will have increased to wipe out the benefit of added capacity. In addition, China and India will remain thirsty to oil energy to fire the engines of their growing economies. This will leave demand on OPEC oil rising steadily. China might be keen on investing billions in developing non-OPEC oils in Angola, Sudan and other countries. The US might be keen on lessening its dependence on imported oil and competing with China to invest in new areas. All this is unlikely to make OPEC irrelevant in global energy market. It might be weaker, but there would still be significant leverage in the organisation, and a need for it. * The author is a London-based journalist and writer.
