The Organization of the Petroleum Exporting Countries, or OPEC, which controls more than 80% of the world’s oil reserves (as of 2013), isn’t wielding the unrivaled sway over crude-oil prices that it has been credited with in the past.
Since the 12-nation organization announced last year that it wouldn’t slash oil production to curb a mounting supply glut fueled, in part, by U.S. shale producers, a growing chorus of market watchers are declaring the cartel dead — or at least significantly neutered.
Bank of America’s Head of Commodities Francisco Blanch is the latest Wall Streeter writing OPEC’s epitaph.
Blanch told CNBC during a TV interview on Monday that OPEC has very little power over crude-oil prices CLK5, -0.75% “[OPEC] has effectively let [the market] do the work that they once did,” Blanch said. “They are letting the market find equilibrium instead of controlling market prices,” Blanch noted.
Letting the market call the shots on oil prices certainly isn’t the 55-year-old cartel’s typical modus operandi
“Today the situation is hard. We tried, we held meetings and we did not succeed because countries (outside of OPEC) were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility,” Saudi oil minister Ali al-Naimi according to Reuters March 22.
Blanch’s comments on Monday come after one of Goldman Sachs’s top commodities strategists, Jeff Currie, made similar statements in late October, noting that U.S. shale producers have been putting pressure on OPEC’s ability to influence prices.
Even Alan Greenspan, former chairman of the Federal Reserve, weighed in on OPEC’s crumbling authority in an op-ed in the Financial Times back in February. Greenspan warns that OPEC’s pricing power may be something that may “never be regained.”
One could make the argument that OPEC isn’t even abiding by its own mission statement, which, in part, is to ensure “the stabilization of oil prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations.”
Talk of a neutered OPEC comes as May Brent crude oil LCOK5, -0.38% is enjoying one of its best rallies Monday, as fears on Iran adding to global oil supplies subside momentarily and the dollar softens.
The moves underscore some of the price swings oil investors have experienced over the past three months. Price swings that OPEC may be less able to influence.