OPEC Loses Price Power as Saudis Take Control

OPEC isn’t moving oil markets like it used to. As Saudi Arabia, the world’s largest oil exporter, has acted with more independence and crude prices stabilized, the group’s gatherings in Vienna to discuss output have lost potency.

The CHART OF THE DAY shows how the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, is meeting less frequently and having a smaller effect on prices. The impact of OPEC’s output decisions, measured by how much the price of international benchmark Brent crude moved after meetings compared with the daily average for that year, was ten times greater in 2008 than 2013, according to data compiled by Bloomberg.

“OPEC meetings used to be a race for any sound-bite from oil ministers, but in such a stable price environment they’re more likely to produce a snore,” said Olivier Jakob, managing director at Petromatrix GmbH, a consultant in Zug, Switzerland. “Saudi Arabia can do some micro-management without the need of an OPEC decision.”

The group met five or six times a year between 2003 and 2006 as it faced supply disruption from the U.S.-led invasion of Iraq and record-breaking Chinese oil demand growth. At the height of its influence in the past decade, as it slashed output during the 2008 financial crisis, OPEC moved Brent as much as 7.3 percentage points more than average on a single day. Since 2011, the group has met just twice a year and its production decisions have barely shifted prices by 1 percentage point more than the average.

OPEC has left its 30 million barrel daily crude production target unchanged since it was introduced in December 2011, while Saudi production has swung within a range of as much as 1 million barrels a day, according to JBC Energy GmBH, a Vienna-based consultancy. Over the same period, the price of a barrel of Brent crude has averaged about $110, a level desired by many OPEC members, JBC said.

“The Saudis are in complete control with their aggressive managing of supply,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. The oil ministers of Saudi Arabia, Angola and Kuwait, as well as 22 of 23 analysts and traders surveyed by Bloomberg News, said they expected no change in output at OPEC’s next Vienna meeting on June 11.

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