Saudi Muscle-flexing Revives OPEC Vigor
Sunday November 30 8:08 AM EST
By Richard Mably
JAKARTA (Reuted here on Saturday were a timely reminder that the giant petroleum producer has no intention of letting its influence over world oil affairs wane.
Riyadh and its Gulf allies Kuwait and the United Arab Emirates wasted little time in steamrolling fellow Organization of the Petroleum Exporting Countries oil exporters into the cartel's first major increase in output limits in four years.
Saudi Arabia's aim was to secure an OPEC mandate permitting it higher outputuotas and raising supply limits by 10 percent to a collective 27.5 million bpd -- in line with current actual OPEC supplies.
"This isn't just about more oil on the market," said Mohammad Abduljabbar of Washington-based Petroleum Finance Company. "This was a political statement on Saudi Arabia's part."
"We regard this as a wholesale policy shift in the thinking and behavior of OPEC after four years of standing by and doing nothing," said a Saudi official.
"This is an excellent agreement because people doubted OPEC could act and thought it was no longer influential in the market," the official said.
Natwest Securities in London said: "The Saudi role is more dominant than ever and their policy of maintaining market share and price stability remains intact."
Even Saudi Arabia can't resurrect the clout OPEC held two decades ago when ministers dictated the price of world oil from their hotel suites.
Now the free market writes the rulebook.
But when OPEC next meets in June, traders at exchanges in London and New York which arbitrate the price of energy should probably sit up and take notice.
Saudi Arabia has indicated it orld oil demand next year as global oil consumption accelerates to 76 million barrels a day.
"In the short run, Saudi Arabia is gambling that prices will not crash," says Petroleum Finance Company.
Oil analysts and traders said oil markets initially will concentrate on the impact on supply.
"I think the reaction will be thumbs down," said Nauman Barakat of Prudential Securities in New York of his expectations . "I don't think the fact OPEC quotas are now closer to actual production will impress the markets -- traders won't buy that.
"The deal puts a lot of onus and responsibility in the market on Saudi Arabia," said Bob Finch, head trader at Vitol SA.
Nevertheless, Sauddi thinking.
With no further plans in the kingdom to raise output capacity the world oil market's cushion of spare supply shrinks significantly -- cut by a third to just two million bpd.
Saudi Arabia will maintain 1.5 million bpd mothballed with a further half million between Kuwait and the UAE.
"That's going to mean markets are going to be even more sensitive if there's any sign of a major supply disruption in the Middle East," said an analyst at the meeting in Jakarta.
OPEC's second biggest producer, Saudi Gulf rival and traditional price hawk Iran put a brace face on a deal which sees output limits a million barrels a daily higher than it would have it liked.
Early signs, said Arab delegates, were that Iranian Oil Minister Bijan Zanganeh was approaching OPEC with a new pragmatism.
Zanganeh's signal that Iran was prepared to compromise on a supply limit higher than it believed good for the market provided an early breakthrough at the talks.
Tehran now must prove it has the capacity to match its new 3.94 million bpd allocation. Zanganeh assured reporters Iran intends to fully use its new allowance.
End:
Let the market decide,
David
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