Why no one needs to pay attention to its decisions any more
OPEC members ignore the cartel´s decisions.
OPEC is deeply divided while any decision has to be unanimous.
Only Saudi Arabia has spare capacity left to move the market.
The last two OPEC meetings in June and December 2011 showed that the cartel no longer playsan active role in shaping the world.
At the first meeting in June, Saudi Arabia wanted to raise production quotas in order to boost oil production. The goal was to lower global oil prices. Even as OPEC members set production quotas and a price band between $70 and $80 back in 2008, member states simply ignored the allocated production quota and produced as much as possible. Saudi Arabia was just the exception, retaining some spare capacity. Prices had risen to $117, far away from OPEC´s target price.
So everyone expected OPEC to raise production quotas in order to adjust its policy to reality.
The meeting ended without any agreement. Saudi Arabia, Kuwait and the UAE wanted to increase production, the rest of the cartel didn´t. So the hawks (Iran, Venezuela) defeated the doves (e.g. Saudi Arabia). The Saudis decided to ignore OPEC altogether and increased their crude oil production to keep the market supplied.
The December meeting was different. Oil prices remained steady at $110. This price seemed to be acceptable to all members, so OPEC decided to keep its overall production at the current level of 30 mb/d. No production quota for individual members was mentioned.
So OPEC is basically out of the game. The world is driven by supply and demand, not by OPEC. Saudi Arabia can keep oil prices above $100; it just has to reduce its oil output. Saudi Arabia may even have some capacity left to increase production in order to stop rising prices.
The OPEC cartel itself is powerless against the market or the Saudis, as no member state wants to reduce its production, since they all need the money.
Libya will restore its full production capacity of 1.6 mb/d soon; Iraqi production is projected to increase this year. So who is going to cut its oil output in order to keep the overall OPEC production at 30 mb/d? Just watch the Saudis and analyze supply and demand. These are the real drivers of today´s oil price.
“Oil leaps on Opec´s failure to agree”, FT 9 June 2011.
“Differences magnified”, FT 14 June 2011.
“OPEC puts united front with output deal”, FT 15 December 2011.