“There will be pandemonium” in global energy markets, writes analyst Michael Klare, after the failure of the OPEC meeting in Doha, Qatar last month to agree on a production cap for petroleum.
“It is hard to overstate the significance of the Doha debacle,” Klare writes. “At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity.”
The meeting’s failure “may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market,” he adds.
“Most of all, however, it demonstrated that the petroleum-fuelled world we’ve known these last decades—with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers—is no more. Replacing it is an anemic, possibly even declining demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares.”
Klare traces the economic and geopolitical calculations leading up to the Doha session, concluding that prospects for a deal foundered in large part on the continuing competition and enmity between Saudi Arabia and Iran. “When the Iranians—who chose not to attend the meeting—signaled that they had no intention of freezing their output to satisfy their rivals, the Saudis rejected the draft agreement it had helped negotiate and the assembly ended in disarray.”
He cites Jason Bordoff of the Center on Global Energy Policy at Columbia University, concluding that the Doha outcome “is a reminder that Saudi Arabia is in no mood to do Iran any favours right now, and that their ongoing geopolitical conflict cannot be discounted as an element of the current Saudi oil policy.”
Elaborating on the growing gap between record oil production and declining demand, Klare notes that industrialized countries’ oil consumption has already fallen from 50 to 45 million barrels per day. “With most nations now committed to measures aimed at reducing emissions of greenhouse gases under the just-signed Paris climate accord,” he adds, “the demand for oil is likely to experience significant declines in the years ahead. In other words, global oil demand will peak long before supplies begin to run low, creating a monumental challenge for the oil-producing countries.”