VIENNA - Once the symbol of oil dominance, OPEC faces new challenges as its members gather for a ministerial meeting this week on how much crude to pump.
For the 12 oil ministers from countries ranging from Venezuela to Nigeria to Iran, the formal focus of today’s get-together is to determine production levels. The consensus in the markets is that ministers will opt to maintain the status quo, as prices for U.S. benchmark oil have traded in a narrow range a few dollars above $90 a barrel. Brent crude, the reference point for many international oil varieties, is just above the $100 mark that some members of the Organization of Petroleum Exporting Countries consider the acceptable minimum.
With prices largely at acceptable levels, the ministers are expected to maintain the cartel’s target at 30 million barrels a day. However, there may be an attempt to cut back on overproduction, now said to be running at nearly 500,000 barrels a day.
On his arrival in Vienna on Tuesday, Saudi Oil Minister Ali Naimi described the status quo as “the best environment for the market.”
For analysts at Commerzbank in Frankfurt, that was a clear signal there would be little or no change in policy - the Saudis are the main driver of OPEC policy. As such, said a Commerzbank note, it is “unlikely that [today’s] OPEC meeting will result in any change to production policy.”
Beyond prices and output, though, OPEC faces other more complex issues, ranging from the ramp-up in shale-oil production in the U.S. and a potentially destabilizing spat between Saudi Arabia and Iran.
The rise in shale-oil production in the U.S., the world’s biggest economy, has an impact on OPEC, as the country remains a main market for OPEC crude. Shale oil helped lift the United State’s total output up to a daily 7.4 million barrels per day this month.
The Paris-based International Energy Agency said total production could top 9 million barrels a day by 2018, which would mean near self-sufficiency for the U.S., as well as significantly less dependence on OPEC imports. It would also swell the U.S. influence on prices that OPEC polices have largely determined in the past.
Even so, OPEC will continue to be a major player regarding global crude supply, as it still produces about a third of the world’s oil. International Energy Agency chief Maria van der Hoeven said earlier this month that OPEC “will remain an essential part of the oil mix for as long as we can tell.”
Still, already frayed OPEC unity stands to further suffer as a result of fears of less dependency on its product.
OPEC member Saudi Arabia and its Persian Gulf partners have the strength to adjust to cheaper oil prices.Naimi, the Saudi minister, recently said there was no need to fear new supplies because “there is enough [demand] to go around” for all oil exporters.
Others, such as Iran, Venezuela and some African producers, disagree, saying they need oil above $100 a barrel to do business.
Angola is among the OPEC members that could suffer from less U.S. foreign-oil dependency. But Angolan Oil Minister Jose Maria Botelho de Vasconcelos shrugged off any potential damage from that scenario Thursday, telling reporters that “there are other markets.”
Divisions also exist along political lines.
Iran is losing hundreds of thousands of barrels a day in oil sales because of international embargoes related to its nuclear program. Along with Venezuela, the country is angry that Saudi Arabia has sought to plug the gap left by overproducing.
Ahead of today’s meeting, Venezuelan Oil Minister Rafael Ramirez told reporters that some OPEC countries were producing above their quotas for “geopolitical reasons” - an apparent allusion to the Saudis, Kuwait and the United Arab Emirates.
Saudi-Iranian rivalries also continue to stymie OPEC attempts to appoint a new secretary-general, who is the organization’s voice between ministerial meetings.
Iran has put forward Gholam-Hossein Nozari, a former oil minister, while Saudi Arabia is nominating OPEC veteran Majid El-Munif as its candidate.
The term of Secretary-General Abdullah Al-Badry of Libya has already been extended several times because of the deadlock, perhaps the most visible sign of cracks in the organization’s facade of unity.
Business, Pages 31 on 05/31/2013