Qatar’s pullout is an ominous sign for OPEC
The re-emergence of the US as an oil producer and exporter is a challenge to the organisation’s authority
falling costs of tight-oil development have short-circuited the group’s traditional approach of managing oil supply over several years to rebalance the market.
The shale boom has also coincided with and encouraged seismic shifts in America’s relationship with the rest of the world, exemplified by the presidency of Donald Trump. Those shifts exist on a continuum between reality and perception, but have changed the calculus for everyone, including OPEC’S members. Saudi Arabia, for example, felt emboldened by President Trump’s embrace to escalate its feud with Qatar last year. Yet the president’s clear antipathy toward rising oil prices and switcheroo on implementing sanctions on Iran has also whiplashed Saudi Arabia and left it in a bind as to how to raise prices without drawing a tweetsorm from Washington, or worse.
The prospect of Trump potentially backing anti-opec legislation in Congress provides another reason for Qatar to distance itself from the group, given its majority stake in a major LNG terminal in Texas. Expect this week’s OPEC statement to be even more artfully worded than usual.
All of this exposes the rot beneath the pomp of those gatherings in Vienna, Austria. OPEC’S divisions in terms of capabilities, wealth, foreign relations, and even political cohesion are wide and widening further. The threat of weakening or even peaking oil-demand growth in coming decades looms over many of these countries, including Saudi Arabia. The latter is now in permanent market-management mode, aided (for now at least) by Russia and trying to balance political and economic imperatives vis-a-vis the other big force in oil, the United States.
OPEC’S lesser members have little sway against these three, and the organisation’s inherent weaknesses make it ill-suited to shaping a more complex and dynamic oil market. Qatar’s withdrawal doesn’t affect that much one way or the other, but it’s the latest sign of what has changed.