OPEC and Russia agreed on production cuts late last year in an attempt to raise oil prices, which had careened to below $30 per barrel early last year from well above $100 in 2014. They have largely held to those lower output levels, helping to lift prices by as much as a fifth.
Oil prices rose sharply after Monday’s announcement, with West Texas Intermediate crude gaining 3.8 percent to $49.66 a barrel, while Brent crude rose 3.4 percent to $52.63. Both reached their highest levels in about three weeks.
Still, a series of factors — from immediate issues like high levels of unsold crude sitting in storage facilities to longer-term trends like the move toward electric vehicles — mean that the two countries, and OPEC more broadly, are no longer the dominant voices of the world oil market.
“What OPEC, and to some extent Russia, and these other countries have been doing since the price collapse of 2014 is pretending to manage the market,” said Robert McNally, a former White House energy adviser who is president of the Rapidan Group, a Washington-based research firm, and the author of a recent book on oil booms and busts titled “Crude Volatility.”
In reality, Mr. McNally said, they were simply “managing or manipulating sentiment.”
That represents a marked shift for a bloc that even today accounts for about a third of the world’s oil production, and which over its six-decade history has enjoyed periodic success at orchestrating output to achieve desired price levels. In the late 1990s, a series of cuts by OPEC, as well as other producers outside the organization, lifted prices after a collapse to the $10 per barrel range.
Now, however, several trends are against it.
In the short term, large amounts of crude remain unsold and in storage, offsetting the impact of some of the production cuts. And higher prices in recent months have thrown a lifeline to shale oil companies in the United States, where output had plunged when prices had fallen. With prices around $50 a barrel, production from shale companies is surging again.
Analysts said that shale and other sources were likely to fill in whatever gaps OPEC production cuts created in the market. OPEC may, in fact, be making things easier for shale producers by agreeing to rein in output for such a long period.
Oil Prices: What to Make of the Volatility
Over the last two and a half years, the oil industry experienced its deepest downturn since at least the 1990s.
“It is now becoming very clear that the cuts aren’t making the oil market rebalance sooner,” said Rob West, a partner at Redburn, a London-based market research firm. “They are prolonging the glut.”
In the longer term, increased use of electric cars and more efficient use of energy may contribute to slowing growth in world demand, analysts say.
The current output cuts, which went into effect in January, may also have been less significant than the fanfare that greeted them might have suggested.
In the months before the cuts came into force, OPEC countries produced flat out. As a result, when they finally throttled back, they were effectively only returning to more normal levels.
For instance, Saudi Arabia, which has taken the brunt of the cuts, only produced about 170,000 barrels a day less in April than the same period a year earlier. That is equivalent to just over 1 percent of its previous total output, and a tiny fraction of global oil demand.
“What they have chosen is restraint rather than huge cutbacks,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm.
At the same time, some OPEC members like Libya and Nigeria are now substantially increasing output.
OPEC could throw up its hands and stop trying to manage markets, but it tried that strategy three years ago and does not have fond memories of the experience.
At the time, Saudi Arabia shocked the markets by declining to intervene in the midst of a stunning price fall — a swoon from over $100 per barrel caused mainly by rising supplies, particularly from the United States. Riyadh argued at the time that bolstering prices would just spur investment in rival sources of energy, and it hoped that lower prices would kill their growth.
With the threat of an OPEC production cut removed, prices dropped below $30 per barrel early last year, forcing the Saudis, whose government budget depends heavily on oil revenue, to reconsider.
Ali al-Naimi, the Saudi oil minister for two decades, lost his job, and his successor, Khalid al-Falih, a veteran oil executive, traveled the world promising to restore balance to the market. Those efforts ultimately paid off when OPEC and other major producers like Russia agreed to trim output.
It appears that, for now, they are sticking to that path.
In a statement on Monday, Saudi Arabia and Russia said they had “agreed to do whatever it takes to achieve the desired goal of stabilizing the market,” adding that a deal between major oil exporters to reduce production should be extended through the end of March.
The two countries said they would work with others ahead of the Vienna meeting, “with the goal of reaching full consensus on the nine-month extension.”
“What they looked to do,” said Richard Mallinson, an analyst at the research firm Energy Aspects, “is send a positive surprise by exceeding market expectations.”
