Cheaper oil [By Zhai Haijun/China.org.cn]
This is a most embarrassing moment for OPEC. The international crude oil price fell below US$26 per barrel last week. This stunning low oil price for all OPEC members is an unbearable difficulty since, in their lengthy oil war, crude oil prices have plunged to the record low for the past 13 years.
A Wall Street Journal report on Feb. 12 said that UAE Energy Minister Suhail al-Mazrouei had announced that, in reaction, OPEC was ready to reduce production and non-OPEC members should also cooperate by doing the same.
This promptly boosted the oil price. The WTI crude futures price for March surged 12.32 percent in the biggest single-day rise since 2009 to close at US$29.44 per barrel. Meanwhile, Brent oil futures for April jumped 10.98 percent to close at US$33.36.
This was not OPEC's first bid to reduce output, although previous ones proved futile. The likely winners this time, however, are the non-OPEC countries and the shale oil industry of the United States, terminating OPEC's longstanding upper hand in the oil market. At the same time, non-OPEC countries are losing patience over this lengthy contention.
The UAE's reason for proposing a "truce" is simple: either everyone reduces output simultaneously or they carry on with the war to the bitter end.
Indeed, OPEC may have miscalculated. In persisting with high production, Middle East countries, as OPEC's core members, are suffering from the resultant low prices. In 2015, Saudi Arabia reported a deficit of a staggering hundred billion dollar scale. Venezuela, meanwhile, is on the brink of bankruptcy.
Iran's reluctance to cooperate is another reason for this internal strife, although it did have a legitimate reason. After the Iran nuclear issue was solved, the Persian Gulf country naturally sought to release the years of pressure from international trade sanctions, so, even at a low price, more exports could still be positive news.
Similarly, OPEC did not expect to see such a strong reaction from Russia, a country stuck in two geopolitical crises - Ukraine and Syria. The United States, although it suspended its shale oil production, seemed unaffected either, as it even lifted a 40-year ban on oil exports.
So far, however, this oil war is nothing compared with the one in the last century when OPEC was able to call the shots worldwide. The current struggle is a contention between old deposits and new technologies, and one between oil exporting countries and industrial powers.
For Saudi Arabia and its peers, an oil war against the United States just means to invite defeat, while one against Russia likely won't bring about success, and one against the other non-OPEC countries will end in a loss for all sides.
OPEC's reluctance to cut its output has largely been blamed on Saudi Arabian obstinacy. The UAE energy minister's remark reflected internal struggles that, in a worst case scenario, could see OPEC fall apart.
In fact, even if the oil war ends immediately, and all oil exporting countries announce reductions in output, the global oil prices won't recover that much; there is no way that the price could return to above US$100 per barrel.
First, shale oil exploration increases the supply in the international market, apart from ending the OPEC's monopoly. Second, the excessively low prices amount to a serious warning to OPEC in that being entirely dependent on oil exports not only leads to financial crisis but can threaten national security; on the good side, this trend will facilitate Gulf countries' industrial optimization.
Third, the oil war has increased many countries' oil reserves by pumping excessive supply into the international market. Hence, despite reduction in output, to accommodate the existing surplus will take some time. And fourth, in the still-gloomy international market in which major commodities all suffer from low prices, crude oil is not an exception.
In the larger picture, ecological civilization starts to take hold globally, leading to international treaties on emission reduction. Clean energies will soon become the market mainstream, replacing non-renewable crude oil to fuel global growth.
Zhang Jingwei a researcher of the Charhar Institute.
This article was first published in Chinese and translated by Chen Boyuan.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.