Who Will Be Next To Leave OPEC After Angola？

Angola announced that after 16 years of membership, it has decided to leave the Organization of the Petroleum Exporting Countries - raising concerns over the group's weakening influence on the oil market.

Futures on Brent crude, the global gauge for oil pricing, traded as low as $77.81 a barrel, or 2.4% below Wednesday's closing level, before recovering to about $79.

Diamantino de Azevedo, Angola's oil minister, announced the withdrawal of Angola from OPEC on Thursday, according to state-controlled news agency Angop.

"We feel that at the moment Angola does not gain anything by remaining in the organization and, in defense of its interests, it has decided to leave," he said, according to the news agency, which reported that the decision had already been "transformed into a decree law" and signed by Angola President Joao Lourenço.

The move follows the Nov. 30 OPEC+ meeting. The group of major oil producers had agreed to voluntary oil production cuts that would total more than 2 million barrels a day, including an extension of a 1 million bpd reduction by Saudi Arabia, starting in January.

■ What is Angola's role in the oil-producing countries?

In 2021, Angola's crude oil production was at 1.137 million barrels a day, with exports at 1.085 million barrels a day, according to data from OPEC. Angola produced 1.130 million barrels a day in November, down 37,000 barrels a day from October. Total OPEC oil production was at 27.837 million barrels a day in November. Angola's 2024 output target would have been 1.11 million bpd.

Dow Jones reported that Angola has no spare capacity and can't even produce to its allocated quota. Angola's production has been declining for over a decade, with present production being well below its decade-old level.

Even though Angola isn't a large producer within the group, its decision to leave OPEC appears to be "a reflection of the unity and harmony within the group - or the lack thereof," Matt Smith, lead analyst at Kpler said.

"I don't think the resignation of Angola is a market-making event," said Tom Kloza, global head of energy analysis at OPIS, a Dow Jones company, "but it does remind people that cohesion within OPEC+ is not particularly strong."

■ Angola is not the first country to leave OPEC in recent years

Indonesia quit in November 2016, followed by Qatar in January 2019 and Ecuador in January 2020.

Around five years ago, Qatar announced that it would leave OPEC in order to focus on gas, denying that the decision was political. However, Qatari energy minister Saad al-Kaabi said at the time that the oil business “is controlled by an organization managed by a country,” referring to Saudi Arabia.

■ Demand concerns surge after U.S. inventory build

Crude oil inventories in the US rose by 2.909 million barrels in the week ending December 15, 2023, compared with market expectations of a 2.283 million barrel draw, data from the EIA Petroleum Status Report showed. The data aligned with a 293 thousand barrel decrease in total product supplied to refineries, pointing to a decline in demand in the period. Angola's departure from OPEC comes at a sensitive time when the economy is slowing down, which may cast a shadow on the outlook for oil prices.

■ Who will be the next to leave?

Angola's departure from OPEC sparks speculation about which country will be the next. UAE had discussions about leaving the group, dating back at least two years.

Abu Dhabi has for some years contemplated what alliances best suit its long-term interests, as it seeks to monetize increases in production capacity.

Oil politics has been driving a wedge between UAE and Saudi Arabia. In July 2021, Saudi Arabia spearheaded a plan within OPEC+ to extend production cuts, which had been set to expire in April 2022, until the end of that year in order to compensate for the near-collapse of oil prices during the COVID crisis. The UAE objected, calling the proposal “unfair” because it would have required it to absorb a disproportionate production cut, a potential loss of income in the tens of billions of dollars. The immediate dispute was resolved later that month when the cartel agreed to raise the production limits of five of its members, including the UAE; but strains have lingered to the point that UAE sources had to deny reports in March that the country was considering leaving OPEC. All sides played down the disagreement, but it laid bare how the UAE, for one, chafed at the Saudi presumption of supremacy in OPEC+—and, by extension, other issues. The affair set the pattern for tensions yet to come between the two Gulf heavyweights, within OPEC and beyond.

In June 2023, when the Saudi-led OPEC and an alliance of oil producers met to determine energy policy, the UAE pulled off a long-term goal of increasing the amount of crude it is allowed to pump.

The upward revision of the UAE's quota will take the Emirates' production up by 200,000 barrels per day (bpd) in 2024 to 3.2 million barrels. Besides, state-run Abu Dhabi National Oil Co. is investing billions of dollars in a further jump in capacity to 5 million barrels a day, which is expected to take until 2027.

“Saudi Arabia is cutting massively. At least Russia says it's cutting. The UAE has cut to the bare minimum,” Viktor Katona, the head of Kpler, said.“The end result is that Saudi Arabia is doing all the work. The UAE is the big winner this summer.”The UAE is richer than Saudi Arabia on a per capita basis, so Saudi Arabia is more worried about short-term prices that could hit government spending. Saudi Arabia is bearing the brunt of oil cuts, in a bid to lift prices. If Saudi Arabia exerts pressure on the UAE, rumors of the latter withdrawing from OPEC may reappear.

Angola's departure also opens questions about what Nigeria will do with its much more significant oil reserves. Raad Alkadiri, Eurasia Group's managing director for Climate, Resources, and Energy, says Nigeria is sure to leverage Angola's departure for better terms on its production quotas, but if push comes to shove, OPEC is content to soldier on without Nigeria as it faces similar challenges attracting investment.