Earlier this year, OPEC and its partners announced that it would begin to ease production cuts for members in the fall. However, with oil prices in steep decline, the group just announced a pause in these plans.
This decision eased concerns about potential oversupply as the fall season approaches, and helped reverse the decline in oil prices. OPEC+, which includes non-OPEC members such as Russia, had originally planned to boost output by 180,000 barrels per day in October.
This was part of a larger strategy to reintroduce 2.2 million barrels of oil into the market over the next year. Even small changes in supply, like 200,000 barrels per day, can significantly impact global oil prices, given the daily global demand of approximately 100 million barrels.
With the massive increase in oil production in the U.S., a common question arises: why should the U.S. care about OPEC’s decisions?
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It’s true that the U.S. is the world’s top oil producer. According to the Statistical Review of World Energy, in 2023 the U.S. produced 15.6% of the world’s oil. But, Russia and Saudi Arabia, respectively the #2 and #3 producers globally, are both members of OPEC+. In addition, many of the Top 10 global producers are in OPEC. Add them all up, and they were responsible for just under 50% of global oil production in 2023.
Further, many members of OPEC consist of a national oil company with far greater market power than any U.S. producer. Saudi Aramco, for example, can move markets. ExxonMobil is but one of thousands of U.S. oil companies, and as large as they are, their decisions simply don’t have a significant impact on the markets.
Beyond oil production, OPEC commands a dominant share of the world’s proved crude oil reserves. OPEC countries possess 70% of the world’s proved reserves, and Russia has another 6%. The U.S. is far behind at 4% of the world’s proved reserves.
This is why OPEC often plays the long game in the crude oil markets. They know if they can outlast the shale oil boom, they might once again be in a commanding market position — as they were prior to the shale boom.
In conclusion, while the U.S. may lead in oil production, OPEC’s influence on global oil markets remains significant due to its collective production power and vast reserves. The recent decision by OPEC+ to halt plans for increasing oil output underscores the group’s ability to shape supply and stabilize prices.
As long as OPEC controls nearly half of the world’s oil production and holds the majority of proven reserves, its decisions will continue to impact oil markets worldwide, including in the U.S. Understanding this dynamic is key to recognizing why OPEC’s actions still matter, even in an era of U.S. energy independence.
By Robert Rapier