But with demand for crude surging as the impact of the pandemic fades, that no longer feels like the case.
“This is definitely a period where OPEC and the wider OPEC+ group is finding it has a lot of influence over oil markets,” said Richard Bronze, head of geopolitics at the consultancy Energy Aspects.
Omicron may put OPEC and Russia on the back foot again. And analysts believe that their sway could recede further over the next year as US producers regain ground. But over time, their strength could increase — especially as the climate crisis prompts others to trim output, either because of pressure from financial backers or in anticipation of a decline in demand.
“The only producers that have put in the investment that’s needed [to sustain long-term production] are Saudi Aramco and Adnoc,” said Ellen Wald, author of the book “Saudi, Inc.,” referring to state oil firms in Saudi Arabia and the United Arab Emirates. “That shifts the balance over to OPEC.”
With the coronavirus variant in the equation, this looks even more likely. Brent crude futures are trading near $71 per barrel after plummeting 16% in November. There’s even some chatter that slashing production could be on the table again to avoid accidentally oversupplying the market and tanking prices.
“The meeting on Thursday is now very much in the spotlight for oil markets,” Bronze said. “I think they are going to have very limited information. … It’s likely to come down to whether to pause planned increases in January or cut.”
Over much of the past decade, when oil prices shot up, US producers rushed to ramp up output, taking on debt to pump as much crude as possible. That’s not happening this time around, as oil companies prioritize returning money to shareholders and watch their bottom lines.
“There’s not that capital available that there was three, four or five years ago to go out and drill and grow,” said Anish Kapadia, head of energy at Palissy Advisors.
That’s giving OPEC greater leverage over prices. It needs them to remain elevated, but not climb so high that US producers feel they have no choice but to boost production again.
Yet until production in the United States recovers, OPEC’s policies will remain a crucial force driving markets. And for now, the group appears committed to erring on the side of caution, rather than risk member nations who depend on oil revenue having to sell into a glut.
US production is expected to snap back next year. But the unusual lag is generating questions about whether a deeper, more permanent shift is at play.
“If you step back, 80% of the growth of oil production in the 2010s came from the United States,” said Nikos Tsafos, an energy expert at the Center for Strategic and International Studies. “If that machine is broken, and we’re not going to get a lot more oil out of the United States, our whole understanding of what the oil market looks like in the 2020s needs to change.”
According to the American Petroleum Institute, the industry spent just $37.4 billion on capital projects in the second quarter of 2021, compared to $68.7 billion during the same period in 2019. It was the lowest spending on record for any quarter since 2008.
Players like Saudi Aramco, meanwhile, are working to boost their production capacity, with an eye on supplying oil to markets as long as there’s demand.
“They still see huge demand in the developing world, and they still see huge demand for oil products,” said Wald, a nonresident senior fellow with the Atlantic Council Global Energy Center, noting the wide range of items that use petroleum as a component.
That underinvestment outside of OPEC, along with newfound financial discipline among smaller shale producers, could have lasting consequences, she continued.
Data from the IEA shows that OPEC and Russia’s share of oil production could climb from 47% in 2020 to 49% in 2030 if countries meet all of their announced climate pledges in full. By 2050, OPEC and Russia are projected to make up 58% of output.
“Things may turn around, but there’s such a deficit of investment, it will take time to come back from that,” Wald said. “It does put OPEC and Saudi Arabia in a good position.”
As always, though, the group’s power is dependent on politics. Much could come down to whether its members can continue to get along and maintain a cohesive game plan. Breaks between Saudi Arabia and Russia in March 2020 caused prices to collapse.
“[OPEC+] needs to act collectively,” Bronze said. “As soon as you get divisions or disagreements, those can really undermine the group’s ability to operate and stick to decisions.”