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Just a couple months ago, some were declaring the old oil order dead after the Organization of the Petroleum Exporting Countries (OPEC) failed to agree on coordinated action at its April meeting in Doha.

That meeting was meant to bring about a production freeze to arrest the downward spiral of prices that began in July 2014. Instead, the Doha meeting was over before it began. Iran refused to slow production until it had regained its pre-sanctions position in the market, so Saudi Arabia canceled the freeze and continued to produce at peak levels.

This week, with oil trading at six-month highs, OPEC members once again had high hopes to show that the organization remains relevant as they gathered in Vienna. Yet, once again, the meeting ended without agreement, resulting in no change to the current policy of essentially unlimited production.

So does the verdict that OPEC is dead still stand, signaling the end of an era in which it supposedly ruthlessly controlled the price of oil? In fact, that era barely existed in the first place. The failed meetings confirm a longstanding truth: the world’s most famous cartel has never really been a cartel.

Rather than the arbiter of global energy, OPEC is and has always been a dysfunctional, divided and discouraged organization.

My recent research has taken me through the history of oil, particularly the relationship between oil revenues, economic development and the geopolitical balance of power in the 1960s and 1970s. Oil’s history has been dominated by a struggle for balance, a contest between competing interests, both economic and political, and between the fundamental market forces of supply and demand.

OPEC has never been shielded from or been able to fully thwart these forces.

Early days: divided and powerless

When it was created in 1960, OPEC was meant to offer members a greater say in how their oil was produced and priced, addressing the disproportionate power wielded by private Western corporations. Its larger goal, to bring order to the chaotic world of global energy, has always been elusive.

OPEC was formed from frustration. In the 1950s, the world was awash in oil as small nations in the Middle East and Latin America discovered enormous deposits, and Western oil companies sought to tap them to meet rising demand.

To gain access to those deposits, the major oil companies (known as the “Seven Sisters”) signed concessionary agreements with local governments, allowing them to pump, refine, transport and market a nation’s oil in return for a royalty, typically 50 percent of profits.

This arrangement gave the companies control over the oil – they set production levels and prices – while governments simply collected a check and had little influence on anything else.

In February 1959, amid an oil glut, the Seven Sisters decided that a price correction was necessary. And so they unilaterally began cutting the posted price, from $2.08 to $1.80 by August 1960. (Back then, oil prices didn’t always follow market forces and were typically set by producers.)

The cuts meant a significant loss of revenue for the oil-producing states. In protest, the oil ministers of Iraq, Iran, Venezuela, Saudi Arabia and Kuwait met in Baghdad that September and formed OPEC to achieve a more equitable arrangement with the Sisters.

In reality, the oil-producing states could do little to coerce the companies into offering better terms. The Seven Sisters dominated global markets and were capable of shutting out individual producers. Oil was abundant, and nationalization seemed out of the question because the companies could successfully exclude an offending country from the market, as they did with Iran in 1951.

In addition, the United States itself was the world’s top producer and immune from supply shocks thanks to import quotas.. If OPEC threatened to take production offline in order to put pressure on the companies, the U.S. could increase its own to make up the difference, as it did during a partial Arab oil boycott in 1967.

In the end, OPEC did not possess enough market share to make a meaningful impact.

A new balance of power

Besides being relatively impotent, OPEC couldn’t agree on a consistent policy among its members. Saudi Arabia wanted to keep production levels low and prices consistent, preserving the global economy and the political status quo. Iran and Iraq, with huge military and development budgets, wanted prices pushed as high as possible in order to maximize revenue.

According to scholar and oil consultant Ian Skeet, an attempt to extract more favorable terms from the Sisters in 1963 was sabotaged by the shah of Iran, who sought a separate agreement.

During the 1960s, OPEC met, debated and released grandiose statements on their rights, yet failed to form a united front.

Nevertheless, significant changes were occurring at the time. Demand for oil shot up, while production in the U.S. stagnated. The ability of the Seven Sisters to control the market was undermined by international competitors drilling new fields in North Africa, where Libya’s Muammar Qaddafi threatened to shut off supply if he didn’t get higher prices.

The companies were under more and more pressure to deliver satisfactory terms to the OPEC members. The price of oil, which had held steady at $1.80 a barrel for years, began ticking upwards. American import quotas ended, leaving the U.S. more vulnerable to supply shocks as its production capacity steadily declined.

These conditions, while not the result of actions by OPEC, gave the organization an opportunity to influence the market and upset the balance of power.

The oil price revolution

This shift accelerated in the 1970s as war broke out between Israel and its Arab neighbors, creating an opportunity for OPEC to wrest control from the Western oil companies.

To punish the U.S. for supporting the Jewish state, Arab oil producers (not OPEC, as popularly believed) cut production and declared an embargo. Together with the war, this destabilized energy markets as demand outpaced supply.

Amid the fighting, OPEC met with the Seven Sisters in Geneva and demanded an increase in the posted oil price. After rejecting a small change, OPEC announced it would double the price to $5 and later doubled it again to $11.65.

This triggered a massive shift in economic power, what Stanford University professor Steven Schneider called “the greatest non-violent transfer of wealth in human history.” With the uptick in oil revenues, OPEC states spent lavishly on economic development, social programs and investments in Western industry and steadily nationalized their domestic industries, pushing out the Seven Sisters.

How did the balance of power seem to shift so suddenly? Among other reasons, the major oil companies could not agree among themselves on a new price and were actually tempted by the high profits that would result. In other words, OPEC had seized control of the oil market largely due to circumstances beyond its control.

The oil crisis

Despite its victory, OPEC had come no closer to resolving its internal divisions. This became evident when another energy crisis hit.

In January 1979, the shah of Iran fled amid revolution, and global oil markets panicked. Prices soared, from $12.70 to over $30 by 1980. Iran’s 6 million barrels per day (bpd) disappeared, and other OPEC states eagerly seized the opportunity to sell oil at costly premiums, sending the price even higher.

In the ensuing years, Saudi Arabia tried to impose a quota system, with overall production capped at 20 million bpd. Most members ignored their quotas or over-produced to gain greater revenue.

Meanwhile, the West worked to improve energy efficiency and invested heavily in non-OPEC oil sources, including Alaska, Canada and the North Sea. By 1985, OPEC’s market share had fallen below 30 percent. OPEC dropped its production quota to 19 million bpd, then 17 million, to account for diminishing demand, but only the Saudis obeyed the rules, losing market share as other producers pumped above the quota level.

By 1986, the Saudis had had enough. Without warning, the Saudi oil minister announced that Saudi production would increase. Overnight, Saudi production shot up more than 2 million bpd, flooding the market and sending prices plunging below $10 a barrel. Sick of watching other OPEC members cheat them out of profits, the Saudis chose to enforce new discipline through an artificial market shock.

Just as the kingdom did in 2014, this move indicated Saudi willingness to use its massive reserves to “correct” the market and push out high-cost producers, even at the cost of its OPEC allies.

Feeling the pain

OPEC’s fortunes have oscillated since the 1986 shock. Cooperation remained elusive.

A 2011 meeting, dubbed “the worst ever” by recently-removed Saudi oil minister Ali al-Naimi, produced disagreements over production levels. Acrimony reigned as OPEC states ignored calls for economic diversification in favor of oil-fueled economic growth.

High prices during the early 2000s accounted for a huge boom in oil revenues for OPEC members. For Venezuela and Nigeria, oil accounts for over 90 percent of all exports. Most OPEC states believed that high demand would last forever, that high prices could fund government programs and that the good times would never end.

Yet the good times appear to be over. OPEC has failed to control the downward spiral in prices, reportedly begun by Saudi Arabia in November 2014 to flood the market with cheap crude to put new and old competitors – U.S. shale producers and Iran – out of business. Saudi Arabia pursued its political interests and existing market share, leaving other OPEC members to fend for themselves.

The death of OPEC has been announced in some quarters, with its long-term decline seemingly assured as global energy enters a new era.

It is possible that Saudi Arabia may emerge from this current crisis unscathed, free to embark upon its recently announced Vision 2030 plan for an “oil-less” economy, however dubious that plan might appear. It’s possible that OPEC may succeed in concerted action in the future. But its recent failures suggest that political interest will be more likely to divide OPEC and prevent mutual self-interest from uniting its members.

By Gregory Brew

Middle East OPEC crude oil oil prices oil exports
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Forecasting Bangladesh Tyre Market | Zulker Naeen

Tyre market in Bangladesh is forecasted to grow at over 9% until 2020 on the back of growth in automobile sales, advancements in public infrastructure, and development-seeking government policies.

The government has emphasized on the road infrastructure of the country, which has been instrumental in driving vehicle sales in the country.

The tyre market reached Tk 4,750 crore last year, up from about Tk 4,000 crore in 2017, according to market insiders.

The commercial vehicle tyre segment dominates this industry with around 80% of the market share. At least 1.5 lakh pieces of tyres in the segment were sold in 2018.

In the commercial vehicle tyre segment, the MRF's market share is 30%. Apollo controls 5% of the segment, Birla 10%, CEAT 3%, and Hankook 1%. The rest 51% is controlled by non-branded Chinese tyres.

However, Bangladesh mostly lacks in tyre manufacturing setups, which leads to tyre imports from other countries as the only feasible option to meet the demand. The company largely imports tyre from China, India, Indonesia, Thailand and Japan.

Automobile and tyre sales in Bangladesh are expected to grow with the rising in purchasing power of people as well as growing investments and joint ventures of foreign market players. The country might become the exporting destination for global tyre manufacturers.

Several global tyre giants have also expressed interest in making significant investments by setting up their manufacturing units in the country.

This reflects an opportunity for local companies to set up an indigenous manufacturing base in Bangladesh and also enables foreign players to set up their localized production facilities to capture a significant market.

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January, 18 2019
Your Weekly Update: 14 - 18 January 2019

Market Watch

Headline crude prices for the week beginning 14 January 2019 – Brent: US$61/b; WTI: US$51/b

  • After a rally, crude oil prices took a breather at the start of this week, as the market moved from a bullish mood to a cautious one as slowing Chinese trade data spooked the market
  • The US government shutdown – now the longest ever in history – continues with no end in sight, with Republicans and President Donald Trump at a stalemate with energised Democrats
  • That ended a week-long rally that allowed crude oil to bounce back from sub-US$50/b levels in December over OPEC+’s implementation of a new deal to shrink supplies and Saudi Arabia’s promise to ‘do more if needed’
  • Even Russia, which showed some reluctance in implementing a speedy cut, has made strides in reducing output, releasing data that showed that production fell by 30,000 b/d in December and is on track for a decrease of 50,000 b/d in January relative to October levels
  • However, the OPEC+ group is now reportedly struggling to set a date for their next meeting, where the supply deal will be reviewed; the review is set for April, ahead of OPEC’s usual Vienna meeting in June/July, but an April review is necessary to assess the expiration of American waivers on Iranian crude
  • Some downside to price trends is that the waivers on Iranian crude exports have nullified the impact of American sanctions; both Turkey and India have recently resumed imports of Iranian crude after a brief hiatus, with India electing to pay for all its crude in rupees
  • Although WTI prices have improved, American drillers are still reticent to add sites, wary of changing market conditions; Baker Hughes indicates that the active American drill count was flat last week, with the loss of 4 oil rigs offset by a gain of 4 gas ones
  • Crude price outlook: Upward momentum should continue with crude price this week, but at a more gradual pace, as fears of a slowing global economy weigh on the market. Brent should stay in the US$61-63/b range and WTI in the US$52-54/b range


Headlines of the week

Upstream

  • BP is proceeding with a major US$1.3 billion expansion of the Atlantis Phase 3 in the Gulf of Mexico, aimed at adding 38,000 b/d of additional output
  • Venezuela has announced plans to remap its Caribbean oil and gas prospects, a move that potentially puts it on collision course with ExxonMobil over the country’s long-disputed borders with the now oil-rich Guyana
  • New seismic studies at BP have identified a billion more barrels of oil in place at the deepwater Thunder Horse platform in the Gulf of Mexico
  • Saudi Arabia has published an updated figure of its oil reserves – its first in 40 years – pegging total volumes at 268.5 billion barrels
  • Norway has cut its crude production forecast, predicting the output will be 1.42 mmb/d in 2019, the lowest level since 1988
  • BP is reportedly looking to sell its 28% stake in the North Sea Shearwater assets to offset its recent US$10.6 billion acquisition of US shale fields
  • The Unity fields in South Sudan have resumed production, after being halted for five years over a civil war, with initial production targeted at 20,000 b/d
  • Eni and Thailand’s PTTEP have secured exploration rights to an oil and gas concession in Abu Dhabi, with Adnoc participating at 60% if oil is struck
  • TransCanada Corp – ahead of name change to TC Energy – is planning to start construction on the controversial Keystone XL oil pipeline in June, even in the face of continued social and legal setbacks
  • Spirit Energy’s Oda field in the Norwegian North Sea has received permission from the Norwegian Petroleum Directorate to start up
  • Aker Energy has completed successful appraisal of the offshore Pecan field in Ghana, estimating some 450-550 mmboe of resources in place
  • Shell and BP have submitted plans to begin exploratory drilling in Brazil’s Pau Brasil and Saturno pre-salt areas in early 2020

Downstream

  • Saudi Arabia has reiterated plans to build a US$10 billion oil refinery in Pakistan’s deepwater port of Gwadar, part of the larger China-Pakistan Economic Corridor plan that is part of the Belt and Road initiative
  • Shell Chemicals has started up its fourth alpha olefins unit at in Geismar, Louisiana, adding 425,000 tpa of capacity to a new total of 1.3 mtpa
  • After being idled over the paralysis between PDVSA and ConocoPhillips, the 335,000 b/d Isla refinery in Curacao has restarted, with operations likely to shift from PDVSA to Saudi Aramco’s Motiva US refining subsidiary

Natural Gas/LNG

  • After seemingly receiving official go-ahead from all levels of government and even indigenous groups, Shell’s US$31 billion Kitimat LNG project in Canada has now been blockaded by a group of protesting First Nation holdouts
  • Completion of major LNG projects in Australia’s west coast have allowed its LNG exports to increase by 23% in 2018, with greater growth expected in 2019
  • The NordStream 2, long championed by German Chancellor Angela Merkel, now faces new opposition in Germany over Russian global political interference – which could result in the controversial pipeline being delayed or cancelled
  • Shell has completed its acquisition of a 26% stake in the Hazira LNG and port venture in India from Total, bringing its equity interest to full ownership
  • BP has announced plans to drill six new exploration wells in Azerbaijan by 2020, hoping to strike a new natural gas play to rival its giant Shah Deniz field
January, 18 2019
Latest issue of GEO ExPro magazine covers geoscience and oil and gas activity focusing on Frontier Exploration and the Gulf of Mexico

GEO ExPro Vol. 15, No. 6 was published on 10th December 2018 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.

This issue focusses on frontier exploration, downhole acquisition tools and how we can collaboratively increase the efficiency of the exploration and production of oil, gas and energy resources. With a geographical focus on the Gulf of Mexico, this issue provides a lesson on the carbonate geology of the Florida Keys and details coverage of newly improved tectonic restorations of the US and Mexican conjugate margins which have enabled enhanced mega-regional hydrocarbon play and reservoir fairway maps of the region.

You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.

To access the latest issue, please visit: https://www.geoexpro.com/magazine/vol-15-no-6


January, 17 2019