Saudi Arabia is reportedly examining what could happen if it left the 15-country oil cartel OPEC and became a cartel all on its own. The news comes amid increased political pressure from the US, a rival oil producer.
A report in The Wall Street Journal, which quotes an unnamed "senior Saudi adviser" at length, says that while the ongoing research does not reflect an active debate inside the government over whether the country should leave OPEC or not, it is part of a wider rethinking about Saudi Arabia's near 60-year membership of the cartel.
Founded in 1960, OPEC currently has 15 members — six in the Middle East, seven in Africa and two in South America. Saudi Arabia has long been the dominant force within the group, accounting for around one-third of the organization's total oil production.
Saudi fears over the country's oil future appear to be rising amid the changing climate. "The kingdom knows demand for oil won't last forever … so you need to think past OPEC. You also have a NOPEC act being considered [in the United States]," the senior adviser familiar with the project told the newspaper, referring to draft US legislation, long mooted, which could declare OPEC an illegal cartel.
OPEC's Joint Ministerial Monitoring Committee meets this weekend in Abu Dhabi before a meeting in Vienna in December where production levels are expected to be discussed.
The government-funded study is being undertaken by the King Abdullah Petroleum Studies and Research Center (KAPSARC). The Wall Street Journal quoted KAPSARC head Adam Sieminski as saying: "We're looking at what happens if there's no spare capacity. One scenario to that is OPEC doesn't exist."
According to the Saudi official quoted at length, the study is seen among senior officials in the country as an exercise in assessing what could happen to global oil markets if demand fell so much that OPEC was forced to disband.
With Saudi Arabia accounting for about one third of the group's 33 million barrels per day (bpd) output, it has long since been the de facto head of the organization and would arguably have the capacity to remain as effective and influential without being part of the wider cartel.
US oil production jumped to a record 11.6 million bpd last week, overtaking the output of Russia — the world's biggest oil producer — by 0.2 million bpd. Saudi Arabia's production is about 10.7 million bpd.
While those quoted in TheWall Street Journal article are at pains to point out that Saudi Arabia is not planning any kind of imminent withdrawal from OPEC, the study aims to "assess the short/medium-term consequences of a dissolution of OPEC," according to an overview reviewed by the newspaper.
That overview is based on two possible non-OPEC scenarios. One, that all big oil producers in the world fight competitively on the global market after the demise of OPEC, and two, that Saudi Arabia attempts to leverage its own massive output capacity and act as a sort of stand-alone OPEC.
The news report will put a renewed focus on the dynamics in Riyadh.