The Organization of Petroleum Exporting Countries' grip on the oil market has weakened significantly as the group now faces a glut of supply from non-OPEC producers, BP PLC's (BP) chief economist said Monday.
"We have a degree of excess capacity in the market so there's a reasonable possibility we will not see price spikes," Christof Ruhl said at a British Institue of Economics seminar. A return to the price enviroment where OPEC is "not in the driving seat," therefore, is likely, he said.
OPEC's round of stringent production cuts that began in late 2008 has stabilized oil prices, Ruhl said. But the global economic downturn has also depressed demand and widened the gulf between consumption and spare production capacity.
Ruhl highlighted the half-life of cartels, pointing out that once they are unable to successfully control price they have "a tendancy to break down," which suggests OPEC may have difficulties maintaining its output quotas.
He forecast two years of stable prices, but given slow demand recovery, said it could take three years to burn through the additional supply created by countries such as Russia.