OPEC will be seeking harmony in Vienna this week. It won’t be easy. Some of the oil cartel’s worst infighting in its 50-year history looms. That could make it tougher to cope with the euro crisis, which shows no signs of easing and augurs poorly for the price of crude. The evidence suggests the Organization of the Petroleum Exporting Countries will not be able to do much about it.
Threats abound for convening oil ministers. The U.S. shale boom is starting to sap demand from their most important customer. OPEC members are also consuming more of their own product, leaving less to export. But the events in Europe are shaping up as the most pressing concern.
The euro zone accounts for a mere 12 per cent of global oil demand, according to BP, or about half as much as the United States. But the 20 per cent price decline since March provides a taste of what could be in store if the continent’s woes tilt developed countries back toward recession.
OPEC has a poor record of halting such dives. Over the past 20 years the cartel has slashed production 13 times to try and prop up prices, according to Deutsche Bank. Three-quarters of the time, the tactic has succeeded within three months. There are three notable exceptions: 1998, 2001 and 2008. In each instance, amid a worldwide economic slump, it took an average of 15 months for the cuts to work.
With a united front, the 12 members would stand a better chance of advancing their interests. But recent meetings have been among the least co-operative since OPEC was formed. Saudi oil minister Ali al-Naimi described last June’s get-together as “one of the worst” ever after the group failed to agree on a production target for the first time in 20 years. There has been only minimal thawing since. Iran, for example, is furious over Saudi Arabia’s increased output, its highest in three decades.
This fractious overhang, combined with the prospect of greater economic distress, means that, at least for now, gas guzzlers everywhere probably don’t have much to fear from the world’s oil monopolists.