A move by
members of the Organization of Petroleum Exporting Countries to put aside major
differences means the group may now be able to defend high oil prices by
cutting production if needed.
Some analysts had warned that mounting political tensions could tear the
organization apart after a disastrous meeting in June over production policies.
That gathering collapsed amid tensions between regional rivals Iran
and Saudi Arabia as
uprisings gripped the Middle East and North Africa.
But six months later, the turmoil has had the opposite effect. Oil producers on
Wednesday closed ranks to defend the high oil price they need to balance their
budgets and quell the risk of social unrest. OPEC members, meeting in Vienna, agreed to keep a
lid on production at its current level of broadly 30 million barrels a day.
Though the status quo suggested the group was stuck in neutral, analysts said
the renewed consensus signals the group could act as an organization of
self-defense against low oil prices by reducing production together.
"OPEC has transformed itself into a type of insurance group,"
Vienna-based oil consultancy JBC said in a note Thursday. It can protect its
price floor by getting some members to alter production, but "only in the
worst case, the big joint cut mechanism [by all OPEC countries] is
triggered."
Though the agreed output was a step toward defending prices, the meeting
avoided the issue of individual production allocations, so splits within the
group could re-emerge should cuts be needed.
During the 2009 recession, the application of concerted OPEC cuts agreed to the
previous year worked wonders. The output restrictions were largely behind a
doubling of the price charged for each barrel of oil in the first six months of
that year. Even though production later increased, the production limitations
helped boost prices to $100 this year.
OPEC can afford falling prices less than at any time in its 51-year history. Both
Saudi Arabia and Iran
have boosted their social spending throughout this year to avoid the kind of
unrest seen in Egypt or Yemen. OPEC
said in a recent report that many of its members now need oil to be above $85 a
barrel to balance their budgets.
Thursday, front-month Brent crude for January delivery gained seven cents, or
0.1%, to $105.09, on the IntercontinentalExchange.
Indeed, in its statement, OPEC warned its members could resort to
"voluntary downward adjustments of output" to avoid market
unbalances, a code phrase for sagging oil demand amid a global economic
slowdown and a pullback prices.
"The economy is still fragile," one OPEC delegate said after exiting
the meeting.
After all, OPEC knows there is only so much it can charge if it doesn't want it
its customers to run out of business.