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OPEC Faces Perfect Storm of Global Supply Glut, Internal Tensions

Tuesday, Dec. 10, 2013

Last week, OPEC decided to leave its production ceiling unchanged at 30 million barrels per day (bpd), the target it set two years ago. On the face of it, this decision seems to reflect the self-proclaimed oil cartel’s satisfaction with current high oil prices. Over the past three years, OPEC has thrived with Brent crude averaging above $100 a barrel, boosting members’ revenues to record highs. High prices have even allowed the Vienna-based organization to become sloppy: OPEC stopped publishing individual country quotas five years ago, and most cartel members are producing all the oil they can; meanwhile, Saudi Arabia and its Persian Gulf allies are adjusting supplies as they see fit.

In reality, OPEC’s inaction masks its members’ inability to agree on a strategy to avert the threat of a widely anticipated supply glut in world oil markets. Below the surface, there is a slow buildup of both external threats and internal tensions that could create a perfect storm for the oil exporters’ club in the coming months and years. The rise in unconventional oil and gas production, but also the growing liquefied natural gas trade and the shift to renewables, are creating a challenging set of market conditions for OPEC. Meanwhile, the prospect of loosening sanctions on Iran and restoring Iraqi and Libyan production threatens other members’ market share, stirring internal tensions. ...

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