Analysts see shift in oil market dynamics on Angola’s OPEC exit 

• Exit holds significant implications for Nigeria 

Angola’s recent decision to leave the Organisation of Petroleum Exporting Countries (OPEC) after 16 years of membership has sparked debate among energy experts and observers. Angola is the second-largest oil-producing country in Africa after Nigeria, and its departure from OPEC is seen as a significant move in the global energy landscape.

Tensions between Angola and OPEC have been simmering for months, with the issue of the country’s production quota being a major sticking point. Angola has argued that its quota is too low and does not accurately reflect its production capacity, while OPEC has defended the quota as necessary to maintain market stability.

The dispute has highlighted the tensions between OPEC’s stated goal of market stability and the interests of individual member countries. Angola has argued that the quota is detrimental to its economic interests, while OPEC has insisted that it is necessary to maintain a balanced market.

Diamantino Azevedo, Angola’s oil minister, announced the country’s withdrawal from OPEC at a ministerial meeting chaired by Joao Lourenco, Angolan president on December 21. Azevedo argued that Angola has always fulfilled its obligations as a member of OPEC and has fought for the organisation to modernise and help its members gain advantages. However, he said that Angola currently gains nothing by remaining in OPEC, and in defence of its own interests, it has decided to leave the organisation.

The announcement of Angola’s withdrawal from OPEC comes just weeks after the country’s production quota was reduced by 350,000 barrels per day. This reduction in production quota was seen as a blow to Angola’s oil industry, and it is believed to have played a role in the country’s decision to leave OPEC.

Azevedo said that when a country’s contributions and ideas are not taken into consideration by an organisation, the best course of action is to withdraw from that organisation. He emphasised that Angola’s decision to leave OPEC was not a rash or impulsive decision, but rather a carefully considered move in the country’s best interests.

When OPEC held its last meeting in November 2023, there was a dispute over the production targets for African countries, which delayed the meeting by several days and ultimately led to it being held online. Angola’s production quota for 2024 was cut by more than 300,000 b/d, well below its November production of 1.13 million b/d.

According to sources, Angola was the only country that held out on the proposed production cuts, and was reluctant to agree to the lower quota. This caused friction within OPEC, and contributed to the decision to hold the meeting online rather than in person.

The departure of Angola from OPEC is the latest in a series of events that have highlighted the diminishing influence of African countries within the organisation. In recent years, several other African countries have left OPEC or its extended grouping, OPEC+. These include Libya, Egypt, and Chad.

With the departure of Angola, the only sub-Saharan African countries left in OPEC are Nigeria, the Republic of Congo, Equatorial Guinea, and Gabon. Sudan and South Sudan are members of OPEC+, but they have had limited influence within the organisation.

Analysts at Canadian multinational banking and financial services company, Scotiabank, have stated that while Angola’s departure from OPEC will not have a direct impact on global oil supply, it is indicative of the increasing tension within the organisation. The analysts noted that Angola was already producing at its maximum capacity, so its exit will not affect the overall supply of oil on the global market. They however pointed out that the decision to leave OPEC is a sign of growing dissatisfaction with the group and its policies. Scotiabank’s analysts believe that this trend of dissatisfaction could lead to further departures from OPEC, which could have a greater impact on global oil supply and prices.

“We won’t be surprised if other more marginal players such as Congo, [Equatorial Guinea], Gabon, etc. revisit their OPEC membership,” they wrote.

The analysts therefore expect a slightly negative impact on energy shares in the near term, since the move “provides a fresh excuse for the players to extend their negative bias in the oil market.

In addition to the possibility of further departures from OPEC, the analysts at Scotiabank note that the organisation’s reduced influence could have other implications. One of these is the possibility of increased market volatility, as countries may no longer be bound by the same rules and regulations. This could lead to a more unstable energy market, with prices fluctuating more frequently.

Furthermore, they believe that the declining influence of OPEC could lead to a decrease in investments in the oil and gas sector. This is because companies may no longer see OPEC as a stable and reliable partner, and may therefore be reluctant to invest in the development of new energy sources. This could lead to a more decentralised and diverse energy market, with less reliance on OPEC and its member countries.

Chris Giles, an economic commentator for the Financial Times, has argued that despite the ongoing conflict in the Middle East and other global issues, oil and gas prices have remained relatively stable. He attributes this stability to the declining influence of OPEC, which has been unable to exert the same control over the global energy market that it once did.

Giles also points to the growing consensus around phasing out fossil fuels, as reflected in the COP28 agreement, as a sign of the declining importance of OPEC. He argues that the peak of oil production is near, and that OPEC+ will not be able to change the trajectory of the global energy transition.

Angola’s withdrawal from OPEC, asides reducing the group’s membership to 12 countries, could potentially have ripple effects throughout Africa, particularly in Nigeria, the continent’s largest oil producer. Some analysts contend that the exit of Angola from OPEC has significant implications for Nigeria. First, Angola is now free to produce and sell as much oil as it wants, without having to adhere to the OPEC quota. This could result in lower oil prices in the long term, as Angola can now undercut the OPEC benchmark price if it chooses to do so.

Also, lower oil prices will negatively impact Nigeria’s oil revenue stream, as the country is heavily dependent on oil revenue to finance its budget. The drop in oil revenue could lead to a shortfall in government spending, which could have a knock-on effect on the economy as a whole.

Nigeria has been in a stubborn  push for OPEC to increase its production quota, as it seeks to boost its own oil production and exports. The country has also been a victim of OPEC’s quota slash as its total volume was reduced from 1.742 million bpd to 1.38 million bpd.

Those familiar with the situation argue that  if Nigeria were to follow Angola’s lead and leave OPEC, it could have a much larger impact on the global oil market. Additionally, Nigeria’s departure from OPEC could have political implications, as it has historically been a key player in the organisation. This is because Nigeria has used its position within OPEC to advocate for the interests of African countries, and to push for a more equitable distribution of resources.

Meanwhile, Heineken Lokpobiri, the minister of state for petroleum resources (Oil) in Nigeria, in a statement, reaffirmed the country’s commitment to OPEC. Without directly addressing the dispute between Angola and OPEC, the minister stated that Nigeria was dedicated to the “collective responsibility” of nurturing a resilient energy landscape as part of the OPEC mission.

Lokpobiri stated, “I am pleased to reaffirm Nigeria’s unwavering commitment to OPEC as we navigate the dynamic landscape of the global energy sector. Our collaboration within the organisation remains pivotal in fostering stability and sustainability in the oil market.

“We are resolute in our dedication to OPEC’s objectives while actively engaging with the organisation to address concerns that resonate not only within our nation’s borders but across the entire continent.

“Nigeria stands ready to contribute constructively to the ongoing dialogue, ensuring that the unique challenges and opportunities of our region are duly recognised and addressed.” 

According to Ayodeji Stephen, a senior energy fellow at the African Energy Council, Angola’s decision to leave OPEC will allow the country to pursue its own economic development agenda without interference from the organisation. He suggests that this could lead to increased investment in infrastructure and the oil and gas sector, as Angola will no longer be subject to the restrictions imposed by OPEC.

Stephen noted that Angola’s decision to leave OPEC may be motivated by the desire to attract more investment from countries outside of the organisation. He emphasised that by being free from OPEC’s restrictions, Angola will be able to negotiate more favourable terms for investment and development.

The energy expert suggests that Nigeria should consider the implications of Angola’s exit from OPEC, and what it could mean for the country’s own economy. He raises the possibility that OPEC could decide to increase the production quotas of other member countries in order to compensate for the loss of Angola’s production. 

However, he notes that this could have a negative impact on Nigeria, as the country may not be able to meet the increased quota, resulting in a loss of revenue.

Stephen highlights the importance of Nigeria’s national oil company, NNPC Limited, in terms of the country’s foreign exchange (FX) reserves. He notes that the NNPC is a major source of FX for Nigeria, and that any changes in the organisation’s policies concerning OPEC, could have a significant impact on the country’s economy. In particular, he raises concerns about the value of the naira, the Nigerian currency, which is already facing challenges due to the lack of FX reserves.

Stephen also emphasises the need to closely monitor OPEC’s reaction to Angola’s exit, as this could provide insights into how the organisation will respond to future developments.

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