OPEC’s celebrations may yet prove premature. One drag on prices could be Iran, where output has been curbed by American sanctions. Speculation that negotiations to revive a deal on Iran’s controversial nuclear programme might soon make progress proved unfounded. The delay means extra Iranian oil is not about to suddenly flood the market. But if a deal is somehow struck this summer, analysts reckon that Iranian exports could rise by 1m bpd or more by the end of the year.
Furthermore, though tight inventories and high demand push up prices in the near term, those very same prices will tempt America’s shale-oil producers, currently restraining investment, to splash out. Saudi Arabia might also find it harder to keep OPEC disciplined, observes David Fyfe of Petroleum Argus, an industry journal. Members tend to adhere to agreed cuts when demand is collapsing, but rising prices encourage cheating.
A bigger worry, says Paul Sheldon of S&P Global Platts, an analytics firm, is “an unexpected demand setback” in 2022. America and China are back to their gas-guzzling ways thanks to the spread of vaccines; Europe is not far behind. But energy demand in India and Latin America, where the pandemic still rages, remains fragile. Mr Fyfe points out that long-haul transportation is another source of weakness.
The gravest threat to the cartel comes from technological change. There are widely divergent views on how quickly demand for the black stuff will give way to greener fuels, even among oil majors. But purveyors of petroleum will almost certainly find a carbon-constrained world tough going. Edward Morse of Citigroup, a bank, makes a subtler point about innovation. Oil may surge to $80 a barrel in the short term, but that is hardly the start of a “new secular bull run”: as the global cost of finding and developing oil has fallen by over half in the past five years to $10-15 per barrel, he reckons fair value for crude is $40-55. The “clumsy cartel”, as Morris Adelman, an energy economist, once dubbed OPEC, is in for a rocky ride. ■
