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Could OPEC be facing a new rival cartel?

09/07/2018
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Yes, you read that correctly, there could be a new oil buyers’ club on the horizon to challenge OPEC’s decades of dominance. The Times of India reports that India and China have been engaged in preliminary discussions with a view to ‘challenge OPEC’s capability to play havoc with crude prices and seek better bargains from the cartel of oil exporting countries’.
The accelerated adoption of renewable energy sources, electric vehicles and smart grid technology is making it more viable for nations to reduce their dependence on OPEC.
(Image via Wikimedia).

With India and China together accounting for almost 17% of world oil consumption in 2017, the prospect of the two countries forming an oil buyers’ club could have a significant impact upon global oil markets.

Formal talks have already begun in Beijing, with an Indian government stating, “The timing is right. The boom in US oil and gas production gives us greater leverage against OPEC.”

India and China are not alone in considering fighting OPEC’s dominance over oil prices. It’s rumoured that Europe and Japan are considering lending their support to India’s and China’s efforts. The accelerated adoption of renewable energy sources, electric vehicles and smart grid technology is making it more viable for these nations to reduce their reliance on OPEC oil.

So, what could be the outcome of the formation of such a buyers’ club?

Bloomberg’s Carl Pope, provides the best summation of what could happen that we’ve seen so far:

“A group made up of China, India, Europe and Japan could wield a very strong negotiating hand. It could make clear to OPEC that transportation is undergoing a transition away from oil and toward electricity, and that the shift could be more gradual if all sides can agree on moderate prices, say $30 to $50 a barrel. But if OPEC is going to keep spiking crude up to $60, $80 and $100 a barrel, the nations of the counter-cartel could unite behind rapid electrification and far more oil will remain in the ground.”

“Either outcome would cut oil demand by 50 percent or more by mid-century, as the Paris goals require, and would signal the end of the petroleum era.”

“OPEC will push back. In theory, it can ramp up or ramp down oil production and prices very quickly- far faster than importers can electrify transportation. At the same time, OPEC members have a strong incentive to pump more oil than their quota when prices are high. So, the cartel has a hard time making, and enforcing, agreements. In contrast, members of an Oil Buyers’ Club would have an incentive to outperform their commitments to electrification to try to get the upper hand in tomorrow’s electric vehicle market.”

It’s clear that should a counter-cartel emerge, headed by China and India, global energy markets will undergo a profound change- along with drastic consequences for the geopolitical, environmental and economic spheres.

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Could OPEC be facing a new rival cartel? - Time to read 3 min
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