Time was when joining the Organization of the Petroleum Exporting Countries (OPEC) would have made perfect economic and political sense for a marginal oil producer such as Equatorial Guinea.

Membership of the cartel equalled access to new investment and markets, and a more dynamic role in global pricing and supply – a no-brainer for the African nation, which began production in 1991.

Times are changing, however, and the organisation’s influence on the world stage has undeniably waned as a result of prolonged and historically low oil prices and the shale gas revolution in the US.

In November 2016, OPEC came out fighting by announcing its first production cuts for eight years. Members plan to trim crude oil output by around 1.2m barrels per day (b/d) from October levels.

A group of eleven non-OPEC producers joined in, reducing output by a further 558,000 barrels per day (bopd). Brent crude prices promptly surged to above $55 a barrel for the first time since mid-2015.

“In the first two months of 2017 OPEC members have demonstrated an unprecedented level of compliance with the production cuts agreed in late 2016,” reports the Economist Intelligence Unit (EIU) in its March commodities forecast. “This marks a major reversal of the “free-for-all” market-share strategy that Saudi Arabia and other Gulf Arab states had adopted in 2014 as they sought to combat the rise in US shale production, which had weakened OPEC’s share of global output.”

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By GlobalData

Members only: why is Equatorial Guinea joining OPEC?

Equatorial Guinea currently produces around 243,000 b/d, ranking 35th globally and 7th in Africa. As of 2015, it contains estimated reserves of 1.1bn barrels of oil, yet recent licensing rounds have been unsuccessful and there are no planned oil projects with final investment decision (FID) status.

In this light, and despite shifting global trade patterns, Equatorial Guinea’s decision to join OPEC and agree to a cut of around 5% of its 2016 production, or 12,000 b/d, still makes sound business sense as a way of kick-starting its oil industry and reviving interest in its upcoming 2016/17 bid round.

“OPEC participation will further support policy alignment with other members, enhancing Equatorial Guinea’s investment appeal.”

“Equatorial Guinea’s oil production is projected to decline by over 57% by 2023,” noted a recent report from market analyst GlobalData. “The long-term supply outlook is bleak for the country considering the maturity of its producing fields and lack of further investment. Only considerable new investment will stabilize the decline and ensure oil production in the long term.”

That vital capital looks unlikely to come from foreign multinationals. Equatorial Guinea already has significantly fewer international oil companies (IOCs) participating in the country than other African OPEC members. Widespread institutional and corporate corruption, coupled with the government’s increasingly uncompromising approach to dealing with IOCs, means that situation is set to continue.

“In an apparent bid by the government of Equatorial Guinea to increase the participation of national oil company GEPetrol, it has taken a hardline approach in dealing with some of the international oil companies (IOCs),” reports GlobalData. “It has been reported that a contract extension for the Zafiro field license operated by ExxonMobil due to expire in 2023 will not be renewed.

“Additionally, purported equity interest farm-out agreements for the Ceiba and Okume fields will not be allowed unless the new partners are on good terms with the government. Both issues point to a strained working relationship between IOCs and the government, challenging one of the potential key sources of new investment.

“Flexibility in license negotiations and incentivized fiscal terms could be key to encouraging further investment in the country’s hydrocarbon sector and increasing participation in its upcoming license bid round,” the report continues. “OPEC participation will further support policy alignment with other members enhancing Equatorial Guinea’s investment appeal.”

Spent force?: US shale revolution hits OPEC hard

So, how much power does OPEC now wield? As of 2015, its 13 members accounted for around 42% of global oil production and 73% of proven reserves. In the short term, then, the organisation can significantly influence oil prices by reducing production, as recent events have proved.

In the long term, however, OPEC is as susceptible to the laws of supply and demand as any other entity; production caps equal reduced revenue, which none of its members will tolerate, at least not for long. Since 2014, OPEC’s ability to control oil prices has diminished as non-OPEC countries such as the US and Canada flood the market, leading to over-supply and prices as low as $37 a barrel.

“As of 2015, OPEC’s 13 members accounted for around 42% of global oil production and 73% of proven reserves.”

According to the US Energy Information Administration (EIA), US oil production is set to increase by 10% to 10m b/d. In a concerted effort to boost oil prices, US shale developers are seizing OPEC’s market share in the wake of the cartel’s decision to cap production in order to stabilise the market.

US shale production isn’t the only problem facing OPEC. The EIA reported that stockpiles of crude hit 518.6m barrels in February, the highest level since the agency began compiling weekly data in 1982.

It should also be noted that since September 2016, US crude output has been rising at an average rate of 93,000 barrels a day, according to Bloomberg, and was back above nine million b/d in March. The Economist Intelligence Unit estimates that US crude production will rise by 2.8% by end of 2017.

Discord in the ranks: OPEC production cut is rare show of unity

OPEC may give the impression of being a united front, but in reality its 13 members often have very different priorities and internecine feuds continue to undermine the cartel’s international standing.

For example, in accordance with the production cut announced in December, OPEC member Iran can produce 3.8m b/d, yet is actively increasing its oil exports − and the same thing is happening in Iraq.

“OPEC’s influence has waned as a result of low oil prices and the shale gas revolution in the US.”

Russia Behind the Headlines reports that in December oil supplies from the deposits controlled by the Kurds in Turkey reached 587,000 b/d, twice as high as the permitted quota of 250,000 b/d.

“Saudi Arabia, UAE, Kuwait, Iran and Qatar are not burdened by enormous loans and are promoting a policy within OPEC of increasing their presence on the market, while poor OPEC countries such as Angola, Nigeria, Venezuela and [Iraq’s] Kurdistan [region] are primarily interested in the growth of prices to make ends meet,” said Gleb Gorodyankin, oil market division editor at Thomson Reuters.

For this reason, Saudi Arabia and its Gulf Arab allies are expected to absorb the bulk of the recent production cuts compared with Iran and Iraq, which sit outside the Gulf bloc in the Middle East.

In summary, OPEC membership is still desirable for a minor oil producer such as Equatorial Guinea. The cartel continues to exert significant influence on a global scale, but in an era of depressed oil prices and increased competition, the air of invulnerability that once surrounded it has diminished.