World Looks to Saudi Arabia After Iran Thwarts Output Bid

OPEC's failure to increase production Wednesday brought immediate bad news for oil consumers, in the form of higher prices. However, big oil importers should take heart from what may be an important silver lining to this cloud.

If the breakaway group of Saudi Arabia, Kuwait, Qatar and the United Arab Emirates solidifies into a new oil producers group that adjusts its output according to shifts in supply and demand a sort of OPEC-lite consumers should be pleased.

Those four countries have time and again proved themselves to be the most moderate and pragmatic of OPEC members who have sought in the past to prevent oil prices rising so high that they damage the economies of major importers.

And they are the only ones who actually have the capacity to increase production at short notice. Out of OPEC's 4.5 million barrels a day, Saudi Arabia alone holds 3.5 million barrels a day.

That is in contrast to members like Iran and Venezuela, who have more often supported higher prices and used OPEC as a platform for anti-Western rhetoric.

For example, Venezuelan Oil Minister Rafael Ramirez took a break Wednesday from talking about the need to maintain the oil price above $100 a barrel in order to criticize NATO for bombing Gadhafi's forces in Libya.

And these countries are already producing as much oil as they can.

"What happened in this meeting was kind of a joke. We had countries such as Venezuela, Algeria and Iraq saying they don't want to increase output when they can't anyway," said Christophe Barret, global oil analyst at investment bank BNP Paribas.

"OPEC was and is Saudi Arabia. It's a bad thing for the other countries that Saudi Arabia has had to show it," Mr. Barret said.

Just as the torrential downpour that swept through Vienna during the meeting was eventually broken by bright sunshine, the silver lining to the OPEC debacle soon became clear.

Two OPEC delegates from the Gulf region said Saudi Arabia alone will pump an extra million barrels a day this month, and other Gulf states would also increase output to meet higher demand.

Source: online.wsj.com