Background Information
The knowledge of Economics is, to me, a derived demand - not an end in itself but a means to an end. What do I mean by this? We were thought in school how a cartel operates under a prisoner's dilemma game & as a major variant of an oligopolistic market structure. In fact, they would always tell you in class that an example of a cartel is OPEC. Meanwhile, the description of OPEC or OPEC+ (defined as OPEC & its non-OPEC allies led by Russia) as a real life cartel is only relative rather than in the absolute sense.
How do I mean? The just concluded price war between Saudi Arabia & Russia that has sent crude oil prices to its historic low is a reminder that OPEC and its non-OPEC allies have some big brothers (Saudi Arabia & Russia, respectively) with spare capacities such that if there is any disagreement between the duo, they are likely to engage in a price war whose impact is being felt by relatively small oil producers such as Nigeria & Angola from Africa. While there are fears that the Nigerian economy could slip into another recession since 2016, Angola is already in technical recession since 2016, even before COVID-19 metamorphosed into a global pandemic as referred to by WHO.
Let's not diverge from the main focus, they will tell you in class that a cartel is a market structure where producers of similar products restrict output in order to push up prices. Unfortunately, in 2019 when OPEC+ started to implement a deal involving a daily oil production cut of 1.2 million barrels per day starting from January, that action pushed up prices to above $60pb reaching over $70pb around October last year. Meanwhile, the Twitter man (Donald Trump) knowing fully well the impact of oil price increase on US producers & consumers alike called on Saudi Arabia to flood the market with oil. But Saudi had already committed to a production cut agreement which was later reviewed upward to 1.7mbpd as at July 2019 expected to last until March 2020. Meanwhile, due to a disagreement between Saudi Arabia & Russia to deepen production cut in a stalemate meeting in March, oil price war became the other of the day with the attendant oil price decline.
Donald Trump in recent times has approached the Saudi Crown Prince to enter a ceasefire with Russia just to assist other high cost oil producing countries including Nigeria & US. Let me admit here that Saudi is a close Ally of the US and could have the long-existing cooperation ties severed with the West were it to defy Trump's & US officials' calls to reach a truce with Russia so as not to keep high cost oil producers including Nigeria & US itself out of business or at loss. Meanwhile, because of the existing political war between the Western Bloc (led by the US) & the Eastern Bloc (led by Russia), Russia has been looking for ways to cut off US' influence from global oil market. Remember that "when Donald Trump sneezes, the global oil market catches cold" goes the slogan whose narrative Russia wants to destroy. This intervention has seen oil prices jump to over $30pb from below $20pb previously. This is to tell you that the so called OPEC that we describe as a cartel theoretically is nothing but a duopoly - Saudi Arabia & Russia remain the biggest brothers whose average cost of oil extraction is about $3pb which compares to Nigeria whose cost per barrel of oil is over $30pb.
I rest my case here for more insightful comments from everyone!
From the above analysis, we can see clearly that the price leadership on the global oil market is attributed to Saudi Arabia & Russia most especially from the supply side. The demand-side forces is traced to China which leapfrogged the US as the largest crude oil importer in 2017 (refer to )
In addendum to my previous response, refer to the following links: https://www.forbes.com/sites/judeclemente/2019/10/17/china-is-the-worlds-largest-oil--gas-importer/#f2b28dc54413 as well as https://www.eia.gov/todayinenergy/detail.php?id=37821
Oil prices were, are, and will continue to be subject to a number of factors including politics. However, supply and demand remains the main factor as regards oil pricing. The bone breaking fights among oil producers themselves as well as between these producers and importers have been occurring since the beginning of oil exporting. That's why we always see such fluctuations in oil prices all the time.
Most of the time, the OPEC members agree with each other on many aspects including cutting oil production and fixing prices; however, sometimes, they fight each other mainly due to politics.
I support your analysis and the point that OPEC is just a variant of Saudi Arabia. However, we must understand that Saudi Arabia and Russian derive this huge supply advantage from the low cost of production of crude oil. Though they may have one of the largest deposits of oil, the ability to crash price depends on production cost. I am sure both countries wouldn't have dared to flood the market and sell below the cost of extraction.
In all, smaller countries with a high cost of extraction suffer.
These smaller countries cannot compete not because they don't have a large deposit of oil or cannot extract as much as they could daily but because they cannot afford to sell at the prevailing low price. This had made them more or less irrelevant as OPEC members. So the true OPEC is Saudi Arabia and the real non-OPEC is Russian.
Let me also add that OPEC, base on the current reality, is meant to assist smaller oil-producing countries and countries like the US. These two countries can afford to sell a barrel of oil at around $20-$30. So, it's safe to say that smaller oil-producing countries need OPEC more than their big brothers (Saudi Arabia and Russia).
If US can make Saudi Arabia to stop the price war, then how can we factor the US influence on the said duopoly. In fact, if because Saudi and Russia price war changed opec status of being a cartel or oligopoly market, then is it appropriate to refer it now as pure duopoly? Considering the third force: ie US.
Saudi Arabia & Russia have competitive advantage relative to the US, whose influence is rooted more in politics than Economic consideration.
OPEC+ have agreed to an oil production cut until 2022 (https://www.bloomberg.com/news/articles/2020-04-12/oil-price-war-ends-with-historic-opec-deal-to-cut-production). You may also care about the attached files. Thank you.
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