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Experts: OPEC loses influence on world oil market

13 June 2011 09:37 (UTC +04:00)

Baku - APA-Economics. OPECâ€™s gathering in Vienna last week ended in â€œone of the worst meetings we have ever had,â€ according to Saudi oil minister Ali Al Naimi, Eurasia Review reported.

The lack of a resolution to raise oil production in the face of tightening markets was first received as bad news by consumers, prices rising $2 in response. Yet the real losers are those who said â€œNoâ€ â€“ Algeria, Angola, Ecuador, Venezuela, Iran, Iraq and Libya. Three hours of argument, the loss of all Libyan exports, the undeniable evidence of oil prices nearing $120 per bbl and OPECâ€™s own research showing increased demand of 2 million bpd in the third quarter this year, failed to convince the refuseniks. The original â€œMr. Nyet,â€ Soviet foreign minister Andrei Gromyko, could not have stonewalled more effectively.

This meeting simply demonstrated what has been evident ever since the 1970s â€“ that OPEC acts effectively only in a crisis. The producersâ€™ organization cut output decisively in March 1999 following the Asian financial crisis, and again in December 2008 when the global recession dragged prices down to $34 per bbl. When times are comfortable, or when a tight market badly needs more oil, OPEC is ineffective due to the basic divergence in interest between its members. The opponents of a production rise simply played a weak hand badly. Had they accepted the clear evidence of need for higher output, they might have been able to reach a reasonable compromise with the Saudis.

The non-GCC OPEC members have simply ruled themselves out of having any influence on the organization. They are all producing at capacity, ignoring their quotas. The only way they can negotiate on equal terms with the Saudis in future is to develop realistic, credible, financeable plans for output growth, and then execute them. Angola, Ecuador and Algeria are less significant players and with limited room for expansion, at least until Angolaâ€™s latest exploration efforts bear fruit. Libya can be ignored until the war against Colonel Gaddafi is over and exports resume. It was interesting that the issue of Libyan quotas â€“ whether to suspend them as with Iraq since 1990, parcel them out amongst the other members, or leave them unchanged â€“ was not even discussed in Vienna.

The breakdown of the OPEC talks, however predictable, is mildly negative for oil prices. That prices rose only modestly, when the OPEC news coincided with a large U.S. stock draw, demonstrates that markets realize Saudi Arabia does not need permission from Hugo ChÃ¡vez or Mahmoud Ahmadinejad to boost output. The OPEC unity of 2009 has evaporated, and its members have returned to a zero-sum struggle, at least until the next crisis arrives.