Stakeholders have said Ecuador’s intention to exit the Organisation of the Petroleum Exporting Countries (OPEC), may not have significant impact on the outlook of the oil market as well as the cartel. While Ecuador had said it would leave in January next year, leaving the group with 13-member nations, stakeholders noted that OPEC’s dominance may not be threatened.
Being one of the smallest producers, Ecuador’s crude oil production was reported at 537.000 barrels/day in August this year. The Resources Ministry of the South America country had said: “The decision is rooted in the issues and internal challenges that the country needs to bear related to fiscal sustainability.”
It added however that the country would continue to support all efforts that seek to stabilise the world oil market.Qatar had earlier this year also announced its exit from OPEC, currently battling to address the volatility affecting oil prices.Apart from Qatar and Ecuador, Indonesia had suspended its membership in 2016.
The development is coming at a time, when OPEC Secretary-General, Mohammad Barkindo, invited all 97 oil producing countries in the world to join the OPEC/non-OPEC alliance, stressing that increased cooperation remained the best recipe for overcoming intensified uncertainties and heightened volatility in the global oil market.
Indeed, Russian Energy Minister, Alexander Novak, Tuesday, urged OPEC and other oil producers to coordinate more closely to reduce market volatility, adding that although oil prices seem stable for now, the market outlook remains uncertain.
Chief Executive Officer, Degeconek and former President of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, said the move could increase oil output in the market. “The two oil producers (Ecuador and Qatar) can now produce as they like. The implication is that the countries would not be subject to OPEC’s production limit anymore,” he said.
Vice President for Latin America at Rystad Energy, Schreiner Parker, had expressed similarly opinion to Bloomberg, saying: “Ecuador is being honest about not being able to subject itself to further cuts.”The Chairman, International Energy Services (IES) Ltd., Diran Fawibe, noted that the country had in the past left the cartel over production levels.
“It is a voluntary association, so any country with justifiable reason can decide to leave at any point, and if condition changes they may decide to reapply. To be a member of OPEC, you have to be an exporter and Ecuador is not really an exporter right now,” he said.
Some analysts had predicted that the move shows that Ecuador was ready to increase exploration and production activities since the country was restricted to maintain oil production below 508,000 b/d in the first six months of 2019 under the OPEC cut agreement compared with a maximum quota of 524,000 b/d in 2018.
Production had indeed affected the country’s 2019 budget estimates, which pegged production at 564,000 b/d, and supports the country’s move to increase production by about nine per cent. PricewaterhouseCoopers’s Associate Director, Energy, Utilities & Resources, Habeeb Jaiyeola, noted that the withdrawal of member countries at a time when OPEC looks to stabilise the market sends a worrisome signal.
According to him, OPEC may need to re-jig, especially bringing the members closer to ensure projected objectives were achieved. He however argued that Ecuador exit “may not necessarily impact the entire OPEC community. If you look at the volume of their production you may want to say OPEC members will not be so affected.”