Falling oil prices put extra pressure on OPEC

OPEC may appear unflinching in its resolve to keep pumping barrels into the global oil market, but not everyone is certain the 55-year-old cartel will manage to hold together if oil prices keep falling.

The landscape has changed since Middle East countries banded together and took over the global oil industry.

OPEC's market share is falling and the group is struggling to keep all of its members happy.

Within the cartel, the disparity between countriesis drastic and creates battles when prices plunge. That'sthe situationright now.

OPEC won't survive.EdMorse, global head of commodities withCitiResearch

"That level of pain is not likely to induce co-operative production cutbacks," said EdMorse, the global head of commodities withCitiResearch, after speaking at a conference in Calgary this week.

"What is Nigeria going to do anyway? What isLibya going to do anyway? And what is Iran going to do? When they all have either for internal social reasons or because of the impositions of sanctions on them an inability really to cut back beyond what they are already cut back to."

In 2013,OPEC members exported $825 billion USin oil, a figure expected to fall to $390 billion in 2015. That works out to about $2,500 per person in 2013 to just $1,100 this year, according to Morse.

He is blunt withhis opinion that "OPEC won't survive."

Price hawks and price doves

OPEC faces internal battles, since the member countries arepetro-states heavily reliant on oil revenue. Several decades after the countries banded together, they are unable to wean themselves off the black gold.

They were always fighting.AtifKubursi, formeradviserto OPEC

There are two types of countries in the group, the price hawks and the price doves. Hawks are the spenders, such as Iran, Iraq, Venezuela and Algeria,countries that relyheavily on oil money to keep their economies healthy.

The doves are the savers, including Kuwait, Saudi Arabiaand the United Arab Emirates. They havehefty bank accounts and areable to sustain several years of low revenue from energy.

"They were always fighting," saidAtifKubursi, a formeradviserto OPEC, who attended severalmeetings. "There was always this conflict between the spenders and the savers. This has never changed."

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On the whole, Morse said, OPEC members weresitting pretty this fall with several hundred billiondollars in the bank from lucrative oil prices during the precedingfew years.That's why when prices began to fall, the cartelwas able to maintainits production levels and send crudespirallingdown even further.

"That led them to focus on the U.S.," said Morse. "Theysaid 'If we have to confront the shale revolution, better to do it now when we havemore money, more ready cash available, than to postpone a day of reckoning. Let's have the day of reckoning now.'"

Morse has questioned the future of OPEC for the last year. He sees rising North American resource wealth as a threat to the cartel, writing in Foreign Policy magazine that"the shoe may finally be on the other foot."

North American production

The introduction of shale oil is one reason for the rise in North American crude supply. The United States is set to become theworlds largest producer of oil.

There are several reasons behind North America becoming more energy independent, includingfracking and the oilsands.

The growth of North American oil production is one reason for the recent collapse of prices. An abundance of supply was the main culprit for the sharp decline.OPEC's production has remained flat since 2012. The cartel's share of global oil production is down to 42 per cent, according to the U.S. Energy Information Administration.

"It's hard to say if theyare in the driver's seat or not," saidMichaelWittner, managing director and global headof oil research withSocitGnrale.

King's death adds uncertainty

The death Friday of King Abdullah of Saudia Arabia adds another element of uncertainty for the cartel.

His half-brother,Prince Salman,has taken over, and is now in control of the world's top oil exporter.

Salmanis expected to announce new ministers in charge of positions such as oil and finance.

The new king's appointments of advisers will be revealing, according to Michal Moore, professor of energy economics at the University of Calgary.

"I would say in the next few weeks, as they begin to sort out what the changes will be and have a press conference, we will have a better idea," he said.

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End result

No one is suggesting that OPEC will fall apart in the near future, but here are some of the challenges it faces in the short and long term.

Oil production will grow in both Canada and the U.S. in 2015, which will keep oil prices relatively low. For the OPEC countries heavily dependent on oil revenue, they face significant financial problems, straining relations inside the cartel.

In the long-term, demand for OPEC's oil could fall. Renewable energy is growing around the world, global oil and natural gas production continueto climband there are questions about whether Asia can continue its double-digit economic growth. All of these factors suggest the cartel's clout will diminish further.

OPEC has faced speculation about its imminent demise before, but the group has proved to be resilient, Still, the cracks in the cartel are showing.

"I think the position of OPEC has changed," said SuncorCEO Steve Williams in November, on the eve of OPEC's annual meeting in Vienna."If you look at the proportion produced in the world and the influence they have, it has been evolving over time."

The Canadian oil executive isn't suggesting an OPEC breakup soon, but possibly over time.

The cartelremains a key player, but less and less so every passing year.

A juggernaut that could once bring Western countriesto theirknees isnow itself becoming fragile.