OPEC: not the same group without quotas
For years OPEC meetings got bogged down in bouts of jealous haggling over member country crude output quotas, a national badge of oil power. But in 2008 the Organization of the Petroleum Exporting Countries decided not to disclose quotas. Then, in December 2011, it lost patience with the endless arguments and discreetly dropped them altogether, settling for an overall group output limit. That cut out some of the quarrelling but left a big question: how to police production and maintain credibility, especially when the lion's share of spare capacity for adjustment is in the hands of one member “ Saudi Arabia. The organization as a whole has not really been functioning, said Leo Drollas, chief economist at the Centre for Global Energy Studies.
OPEC has the chance to re-engage, but of course it means setting individual quotas and sticking to them, which is fraught with peril. Monitoring individual output carefully doesn't matter much when oil supplies and prices are rising, as was the case for the year until March. But with crude now falling “ down $30 since March to below $100 for Brent “ quotas may be needed again if oil traders are to be convinced that OPEC means business.
When it last met in December, OPEC agreed to pump 30 million barrels per day (mbpd), its first new output agreement in three years. It did not set member country quotas. The target was never adhered to and production has risen by 1 mbpd in 2012 to almost 32 mbpd, a four-year high, despite tightening sanctions on Iran that cut its exports. The extra oil, much needed to stem a price rise to $128 a barrel, has come from Saudi Arabia, Iraq and the return to full output from Libya after civil war. There should be individual targets. Last time we left it open, said an OPEC delegate. For it to work, there have to be individual targets. This is not an easy issue, to divide the ceiling between the member countries, said another.
Ministers are expected to take the easy option and leave policy unchanged. Tension between Saudi Arabia and Iran, due in part to a rise in Saudi output that has softened the impact of reduced Iranian exports, has added to the challenge. I do not think they will agree on new quotas yet,said Samuel Ciszuk, consultant at KBC Energy Economics. One reason why is probably that finding common ground between mainly Iran and Saudi will be hard still, particularly given their conflicting interests in view of the upcoming sanctions.
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