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Three Takeaways From This Week’s OPEC meeting

by Blake Clayton
December 14, 2012

OPEC ministers met in Vienna on Wednesday to discuss the current oil market outlook and make a decision about future production levels, as well as to select a new secretary general. After deliberating, the group opted not to alter the current production ceiling of 30 million barrels per day (though they are currently pumping more than that). Nor could they agree on a replacement for the current secretary general, Abdalla Salem el-Badr, a Libyan national, choosing instead to extend his tenure an additional year starting next month.

As with any OPEC meeting, what was not decided—and at times not even mentioned, at least publicly—can be as revealing as what was. So what did this week’s events tell us? Here are three quick takeaways:

  1. The question of how to accommodate soaring output from Iraq is becoming more and more pressing for the rest of OPEC. Currently outside the collective output target, Iraq’s 3+ million barrels per day of crude production is becoming an increasingly significant force in the global market. Iraqi production is widely expected to increase by several thousand barrels a day next year. Its ascent may force its OPEC peers to give way—but that won’t happen without a fight. Some member countries, including Saudi Arabia, think it’s time to give the country a firm target; others, notably Iran and Venezuela, disagree.
  2. The ultimately unresolved debate over who should be the new secretary general bodes poorly for OPEC’s ability to tackle bigger strategic problems in the months and years to come, such as a declining call on OPEC oil next year and booming North American crude.  Several countries put forward names for consideration, including Saudi Arabia, Iran, Iraq, and Ecuador, but none garnered enough support. Riyadh and Tehran both vetoed each other’s nominees. This lack of consensus underlines the depth of the political rivalries within the producer group. Should global market fundamentals become less rosy for OPEC, these divisions raise the likelihood of trouble in an organization where unity is central to the effectiveness of the whole venture.
  3. Despite the longer-term challenges, OPEC can pat itself on the back for a solid 2012, all things considered. There could be trouble ahead, but as for the here and now, OPEC’s doing just fine, thank you very much. According to calculations by brokerage PVM, OPEC saw an average sales price that was $2.32 higher than last year’s $109.70 per barrel, boosting the group’s turnover by $1.14 billion. Not bad for a year where demand-side uncertainty and broader financial market volatility has been pronounced. Now if only Washington and Brussels could manage their markets these days with that much aplomb…

Post a Comment 1 Comment

  • Posted by Jack Rivkin

    If OPEC was really thinking long term and particularly Saudi Arabia, one would think they would allow output to increase and bring the price down significantly. In the short term this would help the global economy, modestly reduce other development including alternative energy and set things up for a more sustainable output at higher prices later. It would play havoc with some of the other OPEC economies and likely accelerate some elements of regime change, but those changes are inevitable. It has been easier and successful for them because they are basically controlling one variable and have financial reserves vs. the buyers of their product.

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