Angola, Africa’s second-largest oil producer, has announced its exit from OPEC following disagreements over production targets, delivering a setback to the oil cartel chaired by Saudi Arabia.
This decision comes after OPEC reduced Angola’s oil output target last month as part of broader production cuts led by Saudi Arabia to support prices.
In response to the announcement, Brent, the international crude oil benchmark, fell by 1.8 per cent to $78.26 per barrel, while the US benchmark, West Texas Intermediate, dropped 2.1 per cent to $72.69 per barrel.
Background: Angola’s ongoing disputes with OPEC
Angola, an OPEC member since 2007, has been in conflict with Saudi Arabia over attempts to lower its production baseline. The production baseline determines each member’s output quota and is adjusted to reflect declines in the country’s production capacity.
In June, Angola walked out of an OPEC meeting but later agreed, along with Nigeria and the Republic of Congo, to have its production baseline reviewed by an independent third party. The review resulted in the reduction of all three countries’ baselines for 2024 during the November OPEC meeting.
Helima Croft, head of commodities research at RBC Capital Markets, emphasized that the seeds of Angola’s exit were sown in June. The country had not fully accepted the agreement that allowed the UAE to increase its 2024 baseline while reducing Angola’s baseline. Additionally, Angola has been characterized as a somewhat unpredictable member, staging multiple walkouts at OPEC secretariat meetings.
While Angola’s departure is a blow to OPEC, it is not expected to significantly affect the group’s ability to influence the market. Angola’s daily production of 1.2 million barrels accounts for about 2 per cent of the total output of the OPEC+ alliance, which includes Russia.
Bjarne Schieldrop, chief commodities analyst at SEB, cautioned against interpreting Angola’s departure as indicative of larger problems within OPEC. He emphasized that the crucial factors influencing OPEC’s stability are Russia and Saudi Arabia, and Angola’s exit should not be seen as a signal of broader disintegration.
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The decision to leave OPEC aligns with Angola’s evolving foreign policy under President João Lourenço, characterized by an increasingly “à la carte” approach. Despite historic ties with the Soviet Union, Angola has become more critical of Russia’s actions, such as the invasion of Ukraine, expressing dissatisfaction with OPEC’s direction set by Saudi Arabia and Russia.
The growing proximity between the US and Angola was highlighted by President Joe Biden’s recent meeting with President Lourenço. The US has committed to investing over $1 billion in Angola, including $900 million in a solar project to accelerate the country’s diversification away from oil. While the departure aligns with a pro-western approach, analysts question its automatic alignment with US interests.
(With inputs from agencies)
