With oil prices having fallen more than 50% in less than six months, the OPEC group's reluctance to cut production in order to stabilize prices reflects the threat being posed by production rises from non-OPEC countries, according to research and consulting firm GlobalData.
Matthew Jurecky, GlobalData's Head of Oil & Gas Research and Consulting, states that over 70% of the 12.7 million barrels of oil per day (mmbd) incremental production between 2008 and 2013 came from non-OPEC countries, led by the US, Russia and China.
However, the fall in prices is now slowing production growth among the least efficient producers with the highest development costs, while the market dominance of the most efficient producers with the lowest development costs, predominantly OPEC members, is being reinstated.
Jurecky comments: "Any production cut from OPEC would be motivated by politics rather than economic conditions and would mean voluntarily ceding further market share to less efficient producers.
"While OPEC countries make up only four of the 17 countries that have seen the most dramatic production declines, they represent over 30% of the overall production fall. OPEC is facing diminishing influence on the overall crude space and encountering new competitors, including some former customers, in previously secure markets."
The US, for example, encouraged by its rapid production growth and lucrative international market, is on course to reverse an oil export ban dating back to 1975, which effectively protected OPEC's markets. Similarly, while Africa used to be the source of over 2 mmbd of crude imports into the US, it now exports only 150,000 barrels per day to the country, with the rest going to Asia.
Jurecky continues: "There are game-changers ready to fuel the next wave of reserve additions and production growth, but in terms of low oil prices, exploration activity will cool. The tight oil floodgates that were opened in the US will be contained internationally for the time being, while ultra-deepwater and harsh environment exploration will be delayed.
"However, other world-class opportunities will be dictated by political interests. For example, inviting greater foreign participation in Mexico's oil industry will further challenge the status quo of export markets, as there remains significant easy oil opportunity in this country, even with low crude prices."
Comments provided by Matthew Jurecky, GlobalData’s Head of Oil & Gas Research and Consulting.
