Data map: Organization of the Petroleum Exporting Countries (OPEC) headquarters. Photo: Xinhua News Agency.
Angola has decided to withdraw from the Organization of the Petroleum Exporting Countries (OPEC) due to dissatisfaction with OPEC's ** production quotas. Angola** has submitted documents to OPEC announcing that it will withdraw from the organization on January 1, 2024, according to the China News Service.
The discrepancy continues. Angola's Minister of Mineral Resources, Oil and Gas, Diamantino Azevedo, said that it is no longer in Angola's interest to remain in OPEC and that "if we remain in OPEC, we will have to bear the inevitable consequences of complying with OPEC's oil production quotas, which is to be forced to cut production".
According to public information, Angola has proven oil reserves of about 9 billion tons. In 2022, the average daily ** output is 113With 80,000 barrels, it is the second largest oil producer in Africa. Oil and gas exports account for more than 90% of Angola's total exports. According to Bloomberg data, Angola, which joined OPEC in January 2007, peaked in 2008 with oil production exceeding 2 million barrels per day, and has been declining year by year since 2019, with an average output of 1.1 million barrels per day.
In view of this, at the OPEC ministerial meeting in June this year, the OPEC group, at the initiative of Saudi Arabia, tried to reduce the production quotas of African oil producers, which caused strong dissatisfaction. Representatives of Angola, Gabon and other countries immediately announced their withdrawal from the meeting, forcing OPEC to agree to a third-party independent body to conduct another study.
But at the end of November, OPEC announced that it had cut Angola's production quota to 1.11 million b/d from the current 1.28 million b/d, based on capacity assessments by three independent agencies. Angola expressed serious dissatisfaction with the quota, demanding that the production quota be revised to 1.18 million barrels per day, insisting that the cut could weaken its ability to increase production. In the end, however, Angola still failed to raise its quota targets.
OPEC was founded in 1960 to safeguard the interests of oil-producing countries by controlling global oil production to ensure that oil prices remain high and stable. In its heyday, OPEC members accounted for 65% of global oil production, but in recent years, OPEC's voice in the global oil market has declined significantly. Although Russia and 10 other non-OPEC oil producers were brought over in 2016 to form the so-called "OPEC+" mechanism, the share of the entire "OPEC+" in the global oil market is now difficult to exceed half.
In addition, due to Saudi Arabia's bent on maintaining high oil prices through mandatory production cuts and increasingly prominent contradictions with medium-sized oil producers that are more dependent on oil export revenues, OPEC has been at odds with each other in recent years: in addition to Angola, Indonesia, Qatar, Ecuador, and Gabon have also withdrawn from OPEC.
Data map: Dr. Antonio Agostinho Neto International Airport in Luanda, Angola. Photo: Xinhua News Agency.
Why "quit the group".
Regarding the withdrawal from OPEC, the Angolan Ministry of Energy further explained that the country has signed a large number of oil purchase and sale contracts with international partners, many of which are valid for many years, and that to fulfill these contracts, Angolan oil production must be maintained at more than 1.18 million barrels per day. If OPEC imposes a quota of 1.11 million barrels per day on Angola, the country's national economy and foreign exchange reserves will be on the verge of collapse due to huge liquidated damages.
Observers point out that Angola's approach is representative of a certain extent, reflecting the growing antipathy of the growing number of medium-sized oil producers among OPEC members to Saudi Arabia, the "leader of the alliance."
In recent years, Saudi Arabia has ignored the dilemma of "waiting for rice to be cooked" in various medium-sized oil producing countries, and has insisted on implementing increasingly stringent production restrictions and price protection measures in order to maintain high oil prices. While this is good for Saudi Arabia, which has the highest annual exports, a sharp drop in production means a significant reduction in revenues for mid-producers, which is far from being compensated for by maintaining a little high oil prices. Since May this year, global oil prices have once again entered a downward channel, and Saudi Arabia has repeated its old trick of "wielding a knife" against the three African countries on the grounds that "the production capacity of Angola and other countries is declining, and the quota must be adapted to it", thus exacerbating the contradictions between them.
The Angolan side believes that the key reason why Angola has reduced oil production for eight consecutive years is that deep-sea oil wells are aging and the production capacity is shrinking rapidly, which is closely related to the decline in the development enthusiasm of multinational enterprises and the reduction of international capital investment. If the output is continued to be suppressed, it will inevitably trigger a vicious circle that will worsen Angola's already fragile economy.
Not only that, although OPEC announced another production cut at the end of November, the international market is still at the lowest level since June. Analysts said that the global economic downturn has led to a decline in energy consumption expectations in major economies, resulting in high pressure on oil prices. OPEC's further production restrictions are likely to lead to "limited production but no price protection", which is obviously more harmful to small and medium-sized member countries that have a worse "ability to resist attacks".
Street view of Luanda, the capital of Angola. Photo: Xinhua News Agency.
Affects geometry. Angola's withdrawal from OPEC will have a limited direct impact on the oil market, as Angola accounts for only 4% of OPEC's total oil production. But for OPEC and Saudi Arabia, this is undoubtedly a political setback, indicating that the power of OPEC as an "oil cartel" is declining.
Analysts believe Angola's exit could deepen the perception that the market can self-regulate and that allowing OPEC to take the lead in managing the oil market is an outdated arrangement, which would "further weaken OPEC's authority and appeal."
In addition, Angola's withdrawal could have a "contagion effect", leading to the withdrawal of more mid-producers with similar grievances, and even the belief that "OPEC is in danger of collapse".
Fortunately, after the announcement of Angola's decision to "withdraw from the group", Nigeria and Congo, two African partners who "slapped the table" together in June, temporarily showed their support for the OPEC system on the table, but their "rhetoric" could not withstand careful scrutiny.
Nigeria, for example, stressed "unshakable" while unequivocally stating that Nigeria's oil production in 2024 is "tentative" at 1.8 million barrels per day, while OPEC has just set a daily production limit of only 1.5 million barrels per day. It is clear that Nigeria's "unshakable" commitment to OPEC is based on the "shakable" nature of the OPEC quota given to Nigeria for daily oil production.
Analysts pointed out that due to the increasingly complex international geopolitical and economic situation, the recovery of shale oil production in the United States, and the increasing pressure of "energy decarbonization", the appeal and binding power of OPEC and the "OPEC+" mechanism will face a more severe test.
In addition, the core of the OPEC mechanism is the Middle East oil producers, and now the relations between Saudi Arabia and Iran, the largest and second largest oil exporters, are unstable, and even among the "six GCC countries" of the "core of the core", Qatar has "withdrawn from the group", and once the recent hot rumors of "the United Arab Emirates may withdraw from the group" become a fact, OPEC and the "OPEC+" mechanism will really have a big incident.
Written by Tao Short Room (columnist).
Edited by Liu Tianhong.
Proofreading by Jun Liu.