The Organization of the Petroleum Exporting Countries (OPEC) just witnessed one of its members leaving the oil cartel after 16 years of membership. Indeed, Angola has recently announced that it was withdrawing its membership from the oil cartel, and this announcement is in part causing a decline in oil prices. There are a few reasons why Angola decided to leave the organization.
First, there was a disagreement between Angola and the key members of the cartel on production quotas. Angola objected to a proposed reduction in its oil production quota set by OPEC, arguing that it would hinder the country's economic growth and development plans. Angola's oil production has been declining in recent years, and the country relies heavily on oil revenue.
Second, Angola realized that its impact on OPEC’s production is limited. Angola's oil production constitutes a small portion of OPEC's total output, around 1.1 million barrels per day compared to the cartel's total of 30 million barrels per day. Its exit is unlikely to significantly impact OPEC's overall production levels.
Third, Angola saw an opportunity to increase its production independently. Outside of OPEC, Angola may have more flexibility to increase its oil production to boost its economy. However, this would depend on factors like attracting foreign investment and overcoming technical challenges in its aging oilfields.
Angola’s exit is partially responsible for the recent decline in oil prices. Indeed, following Angola's announcement, oil prices briefly dipped by over $1 per barrel. This can be attributed to concerns about potential instability within OPEC and the possibility of other members following suit. However, oil prices quickly recovered in subsequent days, as market analysts concluded that Angola's exit would have a limited impact on global oil supply. Additionally, other factors like the global economic slowdown and increased US production continue to put downward pressure on oil prices.
Freed from OPEC+ quotas, Angola can set its own production targets, potentially exceeding its previous allocation and boosting output. This increased flexibility could attract investors seeking higher returns from larger production volumes. And with greater control over its oil resources, Angola can offer more attractive terms to foreign oil companies, enticing them to invest in exploration and development of new oilfields. This could unlock previously untapped reserves and lead to long-term production growth. Thus, investments in advanced drilling and extraction technologies can help unlock deep-sea or unconventional oil reserves, further expanding Angola's production capacity.
Instead of solely focusing on crude oil production, Angola could invest in building refineries and petrochemical facilities. This would add value to its oil resources, create jobs, and potentially reduce dependence on imported petroleum products. Encouraging the development of a skilled Angolan workforce in the oil and gas sector can reduce reliance on foreign expertise and create a sustainable industry. This can ensure long-term expertise and knowledge retention within the country.
It is important to reiterate that oil prices are influenced by global demand and supply, not just by individual producers. That means that even with increased production, Angola’s output remains a small fraction of the global market, so its impact on prices might still be limited. Moreover, political instability or conflict in the region can disrupt oil production and transportation, posing risks to Angola's plans. So nothing is guaranteed, even if Angola is now freed from OPEC’s influence on its oil production.