OPEC's grip might loosen, but it still has pull: Fuel for Thought

OPEC counts 13 countries among its membership, but one of them has long reigned as a first among equals.

Saudi Arabia, with its production of around 10.2 million b/d representing about a third of the group’s output — and about 11% of world supply — has served as OPEC’s de facto leader, its swing capacity traditionally leading the organization’s efforts to manage the market.

But last week’s failed talks in Doha to enact a production freeze saw a potential new oil producer group emerge with another player in the room that could have changed the dynamics of the market and challenged Saudi political eminence in world oil affairs.

The Doha summit of 18 nations included 11 OPEC members and several major non-OPEC producers, most notably Russia, whose output surpasses Saudi Arabia’s at close to 11 million b/d, according to its energy ministry.

Russia has geopolitical ambitions of its own that in many cases do not align with Saudi Arabia’s, particularly in the Middle East, where the two have clashed over the civil wars in Yemen and Syria.

But Russia and Saudi Arabia were among the leading architects of the freeze proposal, before Saudi Arabia reversed course as the Doha talks took place.

Had the talks been successful and a production freeze implemented, would Russia have found itself with an influential international perch in a new oil producer group that supplants OPEC’s role in overseeing the market?

The question is moot for now, as it was Saudi Arabia flexing its political muscle at the meeting, scuttling negotiations over its insistence that Iran be a party to any production freeze agreement and demonstrating that the market still is beholden to Saudi wishes.

But the failure of the talks, coming on the back of a fractious OPEC meeting in December, when the group scrapped its production ceiling altogether in a disagreement over output policy, has brought into sharp question the future of OPEC, which holds its next regular meeting June 2 in Vienna.

OPEC is dead, many commentators have written, as divergent interests have cracked the group and made any consensus on how to manage the market as unlikely as a blizzard in Doha.

“We’ve killed OPEC,” Texas Congressman Joe Barton said in a February interview with CNN, saying the December lifting of the US’ decades-old restrictions on crude exports will put a further squeeze on the producer group.

The Republican is not entirely wrong on premise, though his OPEC death declaration is a bit overwrought. After all, OPEC has ridden through price crashes and fractious relationships before.

OPEC still attracting new members

“OPEC is a bureaucratic organization; it is unlikely to go away anytime soon even if it never made another production decision,” said Jamie Webster, a Washington-based independent analyst. “It may be ineffective on the big decisions, but it is arguably still relevant in some form.”

Dysfunction and recent Doha embarrassment aside, OPEC membership still maintains sufficient cachet that Indonesia reactivated its suspended membership last year, while Gabon is also seeking to rejoin the group, he noted.

Even Washington-based consultant Bob McNally, who characterizes the current market as having entered a “post-OPEC” era, due to OPEC’s unwillingness to serve as swing producer, said the organization will remain as a conduit for its members to discuss market strategy.

“OPEC members are used to operating amidst high tensions among members,” said Bob McNally, a former energy adviser to US President George W. Bush. “They will exchange competing views in the meeting and to the press afterward, but this is par for the course.”

Beyond hosting the twice-annual meetings of its member oil ministers in Vienna, where it declares its output policies, OPEC also provides research on the market and issues regular reports to the public, and its secretary general, Abdalla el-Badri, speaks frequently at forums to represent producer views.

OPEC’s Vienna secretariat hosts a workforce of about 150, including researchers, statisticians, administrative staff and public relations personnel.

Amrita Sen, the London-based chief oil analyst with Energy Aspects, said to look for signs of obvious discord when judging OPEC’s ability to implement policy.

Russia may still have a role to play, as it appears it could be invited to consultations surrounding the June 2 meeting, though the impetus for now is on OPEC to find a détente among its own sparring factions.

“Historically, the most successful deals, particularly when OPEC is concerned, have worked best when agreed behind closed doors and official meetings have only been used to communicate the pre-agreed message,” Sen said. “That still remains the case.” — Herman Wang in Washington