Gulf Dilemma

A CONTRIBUTOR | JUNE 2011 | SOURCE: Zawya

With OPEC seemingly irrelevant, the GCC is trying to find a balance between responsible crude suppliers and their own domestic needs. But, as Deutsche Bank warns, their own high breakeven prices are making them even more vulnerable to oil price shocks than before.

OPEC is in danger of becoming irrelevant, but it could well be that is just reluctant.

Gulf Dilemma

"Narrow self-interest on the part of some powerful member-countries prevented the Organisation from acting in a responsible manner, as even its own analysts had indicated it needed to do," says a note from Centre for Global Energy Studies, managed by Sheikh Yamami, who ran the Saudi oil minister in the 1970s and 1980s.

The Organisation of Oil-Exporting Countries was widely expected to raise output quotas in its most recent meeting, but failed to agree and eventually made no change, surprising pundits and markets.

Ironically, Saudi Arabia, which is the Opec kingpin, hurt the cartel's interest by announcing even before the group met that they will raise their own output by at least 500,000 regardless of what happens at the meeting.

This weakened Opec and hardened the stance of already hawkish producers such as Iraq, Venezuela. In all, seven of the 12 members opposed any increase in quota.

The Saudi oil minister Ali Al Naimi called it the "worst meeting" he ever attended.

More importantly, in the eyes of oil-consuming countries, OPEC has come across as an irresponsible custodian of the world's most important commodity.

Even before the ink had dried on Opec statement that there will be no new supply, the International Energy Agency (IEA) racheted up the pressure, with a statement of its own.

"We have noted with disappointment that OPEC members today were unable to agree on the need to make more oil available to the market," the IEA began. "Of course what really matters is actual supply, which should move in line with seasonally rising demand, and we urge key producers to respond accordingly.

Related article: Can Saudi Arabia supply the oil market by itself?

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