Middle East turmoil perpetuates OPEC charade
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Turmoil in the Middle East and North Africa has been awful for the people of the region. The same cannot be said for OPEC, the oil cartel. The long list of crises – violence in Iraq, fear of sectarian spillover from the Syrian conflict, oil worker strikes in Libya and sanctions against Iran – has conspired to keep crude prices high.
The oil world is changing, and the cartel is losing out. OPEC’s latest Monthly Oil Market Report projects an increase in global demand in 2014 of more than 1 million barrels per day to 90.75 million bpd, but the supply needed from OPEC is expected to fall by more than 260,000 bpd to 29.65 million. The group pumped 30.32 million bpd in August, a survey by Reuters shows. The big winners are Canada and the United States, where fracking has increased production sharply.
It is easy to imagine an oil glut, and much lower prices than the current $115 per barrel for Brent crude. However, unplanned disruptions within OPEC have helped keep up prices without any substantial cuts from other member nations. Almost 2.2 million bpd were kept out of the market in August, according to the U.S. Energy Information Administration. That’s the highest level of OPEC outages since the EIA started tracking them in 2009.
Without these, OPEC would need to act like a real cartel and enforce production quotas to keep the market balanced. The first cut would be relatively easy. Swing producer Saudi Arabia could simply reverse its rough 1.5 million bpd increase in production since early 2011. But then there would be trouble. OPEC has failed to set individual country quotas since a fractious meeting more than two years ago that Saudi oil minister Ali al-Naimi described as the group’s “worst ever”.
For the leaders of Saudi Arabia and other unaffected OPEC members, the string of political and humanitarian crises is a great worry. The risk is that trouble could spill into their borders. But these leaders must be acutely aware that right now a quiet life in the Middle East could further diminish the importance of OPEC, bring much lower oil prices for the world, and much lower revenues for their treasuries.