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Saudi think tank studies a break-up of OPEC, as it prepares to formalize Russia ties

Dubai — OPEC plans to cement its relationship with Russia and other non-OPEC partners next month in Vienna, but a Saudi government-endowed think tank is probing the possibility of the kingdom having to navigate the oil market on its own.

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The King Abdullah Petroleum Studies and Research Center in Riyadh is researching the implications of an OPEC dissolution, as the bloc faces political and market pressures.

Adam Sieminski, KAPSARC's president and a former head of the US Energy Information Administration, told S&P Global Platts the study was not commissioned by the government, and that he does not know what it intends to do with the findings.

"We are now examining oil market behaviour in scenarios that include the absence of spare capacity, and when there is no residual supplier," Sieminski said.

"It was prompted by my interest in making sure that KAPSARC's research is timely and relevant to policy makers and the public. Developments such as the ones we are investigating would have implications for oil prices and production levels across the globe, not just in OPEC."

The study, which has yet to be released, is part of a Saudi government effort to reassess its role within OPEC and the wider market, according to the Wall Street Journal, which was the first to report it, citing unnamed Saudi officials. Although, there is no imminent move for the kingdom to leave OPEC, it added.

Saudi officials could not be reached for comment. KAPSARC, endowed by the late King Abdullah and chaired by Saudi energy minister Khalid al-Falih, says it is a "non-profit institution for independent research into global energy economics."

Saudi Arabia's burgeoning partnership with Russia, forged over the last two years as they led a 25-country OPEC/non-OPEC alliance in production cuts aimed at stabilizing the market, has led to speculation that the two oil supergiants could leave the coalition behind.

The two countries pump nearly a quarter of the world's oil and have held a series of high-level diplomatic meetings, including the first state visit by a Saudi king to Russia, when King Salman traveled to Moscow in October 2017.

However, while eagerly partnering OPEC and sending staff to work at the organization's secretariat, Russia has steadfastly declined to become a member, relishing its independence.

OPEC, meanwhile, has been wracked with internal disputes, as Saudi Arabia's longstanding geopolitical rival Iran has accused the kingdom of being a pawn for the US by raising its production at the behest of US President Donald Trump to offset any Iranian losses due to re-imposed sanctions.

Trump has also often accused OPEC of withholding production to keep oil prices high, and the US Congress is debating a so-called NOPEC bill that would allow the US to sue the organization under antitrust laws.

However, many within OPEC doubt that Saudi Arabia, which pumps nearly a third of the bloc's crude and its de facto leader, would take the drastic step of abandoning the organization that it help found 58 years ago.

"Why would Saudi Arabia want to deviate from OPEC to work with Russia? They can still do that within the OPEC structure," a former OPEC official, who maintains close contact with the secretariat, told S&P Global Platts on condition of anonymity. "Saudi Arabia is the king of OPEC."


For now, OPEC, Russia and the nine other non-OPEC participants in the production cut accord are planning to institutionalize their partnership when they meet December 7 in Vienna. The existing accord expires at year's end, and a new deal would allow the group to adjust production levels as needed to keep the market balanced.

The coalition agreed June 23 to raise production by a combined 1 million b/d to keep the market well-supplied as US sanctions on Iran go into force, and Venezuela continues its economic decline. But with the US having granted waivers to eight countries to continue importing Iranian oil, and OPEC's own analysts seeing a weak market in the first-quarter of 2019, the countries are now mulling a return to the output cuts.

Logistically, many questions remain on how the wider OPEC/non-OPEC group would function beyond its current set-up of bimonthly meetings of a six-country monitoring committee co-chaired by Saudi Arabia and Russia, and twice-yearly meetings of the wider group at OPEC headquarters in Vienna. The monitoring committee meets Sunday in Abu Dhabi.

Saudi Arabia and Russia have discussed setting up a new secretariat to guide the coalition's deliberations, in concert with OPEC's existing secretariat.

Saudi energy minister Khalid al-Falih said in an interview October 22 with Russian news agency, Tass, that he envisioned Russia taking the primary role on the new secretariat, citing the country's status as the world's largest oil producer.

"Russia will have to take the leadership," Falih said.

OPEC officials say they are not worried that the new Saudi-Russia-led partnership would overshadow the organization. Developing a new secretariat, staffing it up, and managing all of the political considerations that come with a 25-country membership will take time and willpower.

"I think people have liked what has happened in 2017 and 2018 [with the production cuts], but questions remain over how formal it can become," another OPEC source said.

-- Herman Wang,

-- Edited by Norazlina Jumaat,