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OPEC members are past masters at whistling in a gale and the Saudi oil minister, Ali al-Naimi called the tune Friday at the cartel's meeting in Vienna: "Supply is plentiful, demand is great, inventories are in balance, so what else do you want?," he pronounced. An OPEC minister from West Africa might have responded: "May we have our North American market back, please."

The cartel is expected to roll over its quota limit of 30 million barrels per day (bpd) and consign to private meetings and smoke-filled rooms the debate about the huge crevasses opening up beneath the organisation. The ghost at the OPEC feast is the stupendous growth in U.S. shale oil output and the prospect of North American energy independence, which is throwing the forecasts of every oil market analyst into confusion. In its monthly reports, the International Energy Agency has been cutting its expected "call on OPEC oil," the amount that OPEC needs to supply to keep the market in balance after non-OPEC oil output is counted. The cartel is currently pumping about a million bpd more than its own quota limit and in May the IEA reckoned, in the absence of OPEC cuts, the cartel would be producing about 2 million bpd in excess of the "call" in the second half of the year.

If all this is true, it is easy to see why Americans might be whistling, but why is the Saudi oil minister so cheerful? The answer is he probably has no choice but to purse his lips and blow. The oil market is a bazaar and the last thing you do if you have too much stock is talk down the price. Consider the storm clouds: soaring U.S. oil output, OPEC overproduction, increasing output from Iraq, falling demand in Europe, weakening economic growth in China and India and the diversion of trade in African crude from the Atlantic market to the Far East.

Several years ago, U.S. refiners would bid aggressively for Algerian, Angolan and Nigerian crude. Today, they don't need it and, anyway, it's too expensive. China is now Angola's biggest customer and Nigeria is looking for new buyers in the Far East where the Gulf nations currently sell their product at lower prices.

In the absence of a strong global economic recovery, this has all the makings of a price war next year, assuming the cartel does not rein in production. The big question is whether it can afford to do so. Saudi Arabia has made it clear that it likes crude at $100 (U.S.) per barrel, a price at which it can pay its vast social security bills. But most of the Arabian Gulf economies rely on high export prices to subsidise the huge and rising internal oil consumption. Recent efforts by the Nigerian government to cut the gasoline price subsidy provoked riots. For most OPEC nations, there is no room to cut exports without internal pain, which means that Saudi Arabia would have to shoulder this burden alone, with a little help from Kuwait and the UAE.

Still, even if the Saudis begin to cut output later this year, the world may begin to experience a real energy crevasse, a world with a split price: cheap oil and gas for North Americans and expensive energy for everyone else. Huge political pressure would mount on North America to begin to export oil as China steps up its efforts to buy oil resources and corner supplies. It's not what most people would call a balanced market.

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Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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