OPECis changing. Not because of the direct failure of the cartel but because of changes in the structure of the oil market. Significant changes in both supply and demand will mean that it will more difficult for OPEC to control price. This will lead to the breakdown if there is not an adjustment in behavior.
It is likely we will see a more volatile 2014 in the oil market. There are four reasons for the change in oil market and OPEC:
1. Declining demand from the US. The US will not be energy independent but strong production in oil and natural gas means here is more supply available to the global market from OPEC countries. The oil has to be sold somewhere and likely at a lower price.
2. New supply form Iran and Iraq. If there is some negotiated settlement conceding nuclear power and Iran this will open up production to the global market. There is still IRan supply hitting the markets but a defreezing of the trade restrictions will cause a jump in supply. Iraq will also be a bigger producer in the next few years. It needs huge sums of money to rebuild the country. Hence, there is a willing seller.
3. Asian demand change. The Asian demand is offsetting some of the decline from the US, but there is a wholesale change in OPEC selling from West to East. This has already begun but will continue to be the key logistic issue in the global market.
4. The Saudi's need for funds. There is a significant need for funds to meet budget demands. A cut in production is good for price but may still have a negative impact on revenue.
The world is changing quickly in the global oil market and some players may not be ready for this change.
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