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Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi. (HASSAN AMMAR/ASSOCIATED PRESS)
Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi. (HASSAN AMMAR/ASSOCIATED PRESS)

OPEC’s slipping grasp on the world’s oil market Add to ...

“As the U.S. draws less on globally traded crudes, those crudes will then be looking for a home and that’s where the pressure comes – competition among non-North American internationally traded crudes of which OPEC is a big part, but there are others,” Ms. Dwarkin said “So it’s a somewhat more competitive environment in that sense.”

The Iraq factor

A thornier problem for OPEC is developing from within the family – Iraq.

Blessed with 20 per cent of the world’s conventional reserves, it aims to boost its oil exports to seven million barrels a day from the current capacity of about three million. Even if it accomplished only half that, it would be a major source of additional production to a global market that OPEC says is already well supplied.

Unless economic growth rebounds smartly, OPEC members will have to cut production by as much as one million barrels a day over the next year, even as Iraq – backed by China, which already buys half its crude – looks to add 500,000 barrels a day each year. Failure by the cartel to respond would leave the world awash in crude, and threaten to send global prices sharply lower.

But Iraq remains deeply divided along sectarian lines. Sunnis, Shiite and Kurds are vying for power – often violently – in a country that has yet to stabilize after the U.S. invasion and occupation, and in a region where tensions have escalated with sanctions against Iran and the Syrian civil war in which OPEC heavyweights are backing competing sides. Political upheaval could thwart the best intentions of rebuilding Iraq’s oil sector.

In addition, Saudi Arabia, which requires growing oil revenues to finance ambitious economic and social programs, will have limited patience for unrestrained production from Iraq, Mr. Yergin said.

“In any battle for market share, Saudi Arabia has the heft that no one else has,” he said. “If Iraq does continue to substantially grow, there are definitely limits to which the other Gulf countries – not just Saudi Arabia – are willing to make room to accommodate Iraqi supply. “ Since its founding in 1960, OPEC has faced numerous crises, including the Iranian revolution and Iran-Iraq war in 1979-80, a precipitous drop in world demand that pulled prices down to $9 a barrel in 1986, then the runup in 2008 to $148 a barrel, a price that threatened the world economy. Experts caution that today’s pressures do not necessarily mean the cartel is in trouble.

“It depends what your definition of trouble is,” said Manoucher Takin, an analyst at the London-based Centre for Global Energy Studies, a group founded by former Saudi oil minister Sheik Ahmed Zaki Yamani. “Ever since OPEC was established, on many occasions, OPEC has been said to be in trouble. But it is still here.”

Mr. Takin said OPEC ministers are reluctant to act in the market based on forecasts of things such as shale oil production, but wait until actual conditions warrant a new strategy. At this point, with Brent crude prices in their target range, they’re pretty satisfied, despite OPEC’s own forecast of market weakness in the second half of 2013.

On the other side of the equation, there remain major questions about global demand for crude. The IEA forecasts that world oil consumption will grow to 90.6 million barrels a day this year from 89.8 million in 2012. If that holds, the demand for OPEC oil should remain healthy.

The IEA has cautioned, however, that demand growth in the hugely important Chinese market is expected to “shift to lower gear” as growth slows and the country seeks alternatives to combat urban pollution.

With files from Reuters and Agence-France Presse

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