International oil futures fell by over 2% intraday on Thursday (December 21, 2023), before mounting a partial recovery, after Angola announced its decision to quit the Organization of the Petroleum Exporting Countries (OPEC).
Given OPEC and OPEC+, a select group of other OPEC allies led by Russia, are supporting crude prices in the face of a challenging demand picture by cutting production, fears of disunity within their ranks turned the market in the red.
While the development carries a shock value, departures of low to mid-sized oil producers from OPEC do happen from time to time. For instance, Qatar and Ecuador did head for the exit door in the last decade. However, the manner of the departure raises several questions.
The country, which joined OPEC in 2007, produces 1.1 million barrels per day (bpd). Angola had strongly protested against OPEC’s decision to cut its output quota at the organization’s last meeting. It was seeking to raise its output to 1.8 million bpd. That’s despite 2023 being a lackluster year that saw the country hit a 20-year low in production back in March.
In a statement cited by local news agency Angop, Angola’s Mineral Resources, Oil & Gas Minister Diamantino de Azevedo said: “We feel that, at this moment, Angola gains nothing by remaining in the organisation and, in defense of its interests, it decided to leave.
“When we are in organisations and our contributions, our ideas, do not produce any effect, the best thing is to withdraw.”
‘Crude’ withdrawal symptoms?
Big question is – what does Angola’s withdrawal mean in the wider context of the global crude oil markets? Well, for starters the market bears would be overjoyed. OPEC+ disunity may usher in weakness in the pricing support provided by the group.
However, those with short positions, i.e. betting on the oil price falling, need not exaggerate the impact of this development. OPEC and OPEC+ heavyweights Saudi Arabia and Russia are still around, as are the Middle Eastern producers. None of them are going anywhere in a hurry.
Oil prices are currently oscillating in the price range that they have been due to the wider demand dynamic. In any case, output cuts of the sort that OPEC+ is instituting can only make an impact to a limited extent and quite possibly over a limited time frame. That’s because the loss of market share is bound to bite OPEC+ as non-OPEC production, especially that of the U.S., heads upwards in 2024.
Additionally, the non-OPEC-ers will soon count Angola within its ranks. And on the subject of global oil market share, the country’s departure reduces OPEC’s yet further still. Minus Angola, the group will have 12 members pumping around 27 million bpd. That’ll be around 26.5% of global market share assuming and oil demand figure of 101.7 million bpd for 2023, as projected by the International Energy Agency (IEA) in its latest oil market report.
So implications for OPEC+, near-term market pricing, assumptions on where OPEC and non-OPEC market share will likely be in 2024 all amount to a shock. But it’s one that’s by no means a seismic one.