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Can Opec weather the storm over oil?

ISTANBUL For cartel Opec - created in 1960 with the aim of supporting a sustainable price on the oil market - it is in some ways a perfect storm.

Stocks have surged, thanks to the rapid emergence of oil from US shale deposits.

And due to the abundant supply, the price of oil now stands at less than US$50 a barrel, around a third of the level 10 years ago.

This has been terrible news for the cartel's leading members, which includes Iran, Saudi Arabia and Venezuela, who have seen holes blown in their hydrocarbon-dependent budgets.

On a longer term horizon, the focus has switched from when "peak oil" will be reached - the moment oil extraction declines due to dwindling resources - to when demand could fall.

So the mood as top energy bosses and ministers met at the World Petroleum Congress in Istanbul last week ranged from pensive to sombre.

"It is hard to come to terms with the fact that this is a different oil industry," said IHS Markit vice-chairman Daniel Yergin. "The United States will later this year or early next year reach the highest production in its history."

The Organisation of Petroleum Exporting Countries has no control over the revolution caused by the production of shale oil in the US, which is not a member.

In a bid to push prices up, Opec and key non-cartel members - including Russia, but not the US - agreed coordinated output cuts in December.

The cuts were planned for six months and extended for three. So far, they have had hardly any effect, with oil prices still around US$45 a barrel.

The oil industry was confronted by market forces, "which are strong and stubborn, and as a result we are here today with prices that are stuck... where they were six months ago", said International Energy Agency director Fatih Birol.

"It will be a very, very difficult six months for the industry, a case of riding out the storm."

Opec secretary-general Mohammed Barkindo admitted there had been "high expectations" that markets would respond to the deal, but so far these had not been realised.

Opec and the non-cartel members party to the deal will meet in Russia on July 24 to review the deal's effects.

In an effort to tighten coordination, Mr Barkindo revealed that Opec had held "useful preliminary meetings" with US shale producers.

Opec's own influence has also slipped in recent years and it now counts for just a third of global oil supplies, compared with 40 per cent a decade ago.

As well as the US shale revolution, the greater importance of additional non-Opec market players such as Brazil and Mexico is also being felt, according to US-based Energy Security Analysis head Sarah Emerson.

Meanwhile, rapid global changes could also hit demand for oil in the long term, especially with the expected growth in electric cars.

But participants in the congress emphasised that the growth in electric cars was starting from a low base, and petrol would likely still be needed in trucks and planes for years to come.

Renewable energy is also seeing unprecedented growth, while companies are under pressure to reduce emissions in line with the Paris Agreement on climate change.- AFP

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