Saudi Arabia is studying the theoretical dissolution of OPEC, the Wall Street Journal reports, citing sources from government think-tank King Abdullah Petroleum Studies and Research Center, which is in charge of the study.
The cartel has gone through a turbulent couple of years after the 2014 price collapse, when its pump-to-the-max strategy failed to bring down U.S. shale producers and only caused a glut that hurt OPEC members themselves. Now, its largest member and natural pack leader is struggling with a backlash from investors following the murder of dissident Jamal Khashoggi and falling demand for crude.
The WSJ quotes source as saying what prompted the study was the realization that demand for oil will one day peak and Saudi Arabia needs to prepare for that day. But that’s long-term strategizing that one may argue is well overdue. On the other hand, there are short-term problems within OPEC, the sources said. Some members of the cartel are unhappy about the closer relations between Riyadh and Moscow and have complained about being sidelined by the new duo.
One Saudi official told the WSJ Riyadh was itself wondering if Saudi Arabia won’t be better off with only Russia as a partner: together the two produce more than 20 million bpd of crude. Put bluntly, it might well be easier to swing markets with only one partner instead of a dozen, among them your archenemy Iran.
The WSJ talked to Adam Sieminski, the head of the King Abdullah Petroleum Studies and Research Center, who commissioned the study and he said the research built on earlier studies that focused on OPEC’s spare capacity and its role in oil market stabilization. The study looks into two scenarios: one, in which Saudi Arabia strikes out on its own as a market swinger and one, in which all OPEC members compete among themselves and non-OPEC producers, including the Kingdom. Conclusions are yet to be made.
By Irina Slav for Oilprice.com
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