WHY OPEC CAN’T WIN: IT KEEPS BLINKING.

It surprised no one, but disappointed many. Last week, the Organization of Petroleum Exporting Countries (OPEC) agreed to extend the production limits it brought in last November for another nine months; the largest non-OPEC producer, Russia, also signed on for the extension. And what did oil prices do? They dropped five per cent. Go figure.

Clearly, oil traders had hoped for more — as in, deeper cuts to the November production targets. Targets which, by the way, were set following months of record production in Saudi Arabia and Russia. Which obviously limited their net impact.

But when faced with the opportunity to get serious about cutting production in hopes of sustainably higher prices (say, above US$50 a barrel), OPEC blinked. That, too, was nothing new. It blinked last November when it reversed the policy championed by former Saudi oil minister Ali Al-Naimi, who two years previously had sent prices plunging by opening up the taps. Let market forces do their job, was Al-Naimi’s mantra, even as oil dipped under US$30. But he retired last year. And his Saudi successor, Khalid al-Falih, apparently has neither his guts nor his patience.

No doubt, Al-Naimi’s bold U-turn was controversial, and it made life difficult not only for lesser, cashstarved OPEC members like Venezuela, but also for Saudi Arabia itself, whose government revenue and cash reserves took a big hit.