IRVING, TEXAS – When OPEC members met in Vienna recently, the Saudis failed to control the meeting, OPEC’s production ceiling remained unchanged, and member countries are setting their own output levels. But talk of an OPEC breakup is premature. After all, it has survived major wars, numerous diplomatic disputes, and two major market collapses. In fact, the secret to OPEC’s survival is its weakness, not its strength.
Friction or no friction, OPEC has been, and will always be, irrelevant to market forces on the ground. OPEC has never had market power, but Saudi Arabia has, and Saudi market power has always been assigned, mistakenly, to OPEC.
The Saudis did not like the recent meeting. They decided to go it alone. Can they deliver? The answer is no. The recent move by the 28-member International Energy Agency to release oil from strategic reserves proves this point.
The global oil market has become a large sea that generates its own storms, which guarantee that the sea will continue to grow. Looking at recent history, one can identify four factors that will continue to drive oil prices higher unless a major earthquake brings the market to its knees.