Qatar leaves the OPEC while the world faces the risk of a new oil glut

Qatar’s decision to leave the Organization of Petroleum Exporting Countries ( OPEC ) in 2019 and the risk of a new oversupply crisis has attracted the international attention around the current meeting of the group and its associated states— Mexico included—from the Non-OPEC Ministerial Monitoring Committee in Vienna .

As it is often the case in the oil market , the Qatari move takes place in a geopolitical backdrop marked by the conflict between the tiny, yet rich and influential Persian Gulf monarchy and Saudi Arabia .

Once allied in its designs of regime change in Syria sponsoring the Islamist rebels —and thus trying to ensure a cheap corridor for Doha’s gas exports to Western countries,—last year the two nations broke over strategic differences.

The independence and growing political clout of Qatar , as well as its support to antagonist movements , such as the Muslim Brotherhood , was unacceptable for the de facto Saudi ruler , Crown Prince Mohammed Bin Salman , who considers himself the regional leader in opposition to Iran and Turkey .

Together with the United Arab Emirates and Egypt , Bin Salman —better known as MBS —issued a virtual ultimatum to his counterpart, the Sheikh Tamim bin Hamad Al Thani , Emir of Qatar , demanding that the country must cut relations with Iran , comply with the United States sanctions on Tehran , shut down a Turkish military base , and shut down the state-funded broadcaster Al Jazeera , arguing that Qatar had violated a 2014 agreement with the Gulf Cooperation Council ( GCC ) to not undermine the “interests, security, and stability” of its members.

In spite of a land, sea, and air blockade from Saudi Arabia and its allies, Sheikh Tamim has not comply with the demands relying on Qatar’s importance, symbolized by the world’s third largest natural gas reserves and the Al-Udeid Air Base , a joint U.S.-British base which acts as the hub for all American and British air operations in the Gulf.

In contrast with its position as the largest exporter of liquefied natural gas ( LNG ), Qatar accounts for less than 2% of OPEC’s crude oil output.

However, it cannot be denied the impact of its decision to quit the bloc, possibly also motivated by the prospect of the White House potentially backing anti-OPEC legislation in Congress , given its majority stake in a major LNG terminal in Texas .

Atrocious murder

Weakened by the atrocious murder of journalist Jamal Khashoggi in Turkey , the defeat of fundamentalist rebels in Syria and the failure of the Saudi military intervention in Yemen , which has led to the worst humanitarian disaster in decades, Riyadh is showing signs of negotiation.

On Tuesday, one day after Qatar announced that is leaving OPEC, King Salman invited Sheikh Tamim to the upcoming GCC’s summit , set to take place in the Saudi capital on Sunday .

The official Qatar News Agency did not say if Sheikh Tamim would travel to the kingdom, a risky move considering that the Lebanese Prime Minister Saad al-Hariri was taken hostage there by MBS for more than 12 days and was forced to resign in 2017 , according to the Lebanese President Michel Aoun .

As for the OPEC meeting which began yesterday, Saudi Arabia is trapped between a rock and a hard place due to the need of a deal to reduce production by at least 1.3 million barrels per day ( bpd ) to avoid an oversupply crisis , and the pressure from U.S. President Donald Trump to maintain lower oil prices.

While Trump is shielding MBS and his country from potential serious sanctions—including an arms sales ban—demanded by U.S. Senator Rand Paul and other lawmakers over the murder of Khashoggi, the key in reaching a deal in Vienna is the Russian position , according to OPEC sources cited by Reuters .

“Russia is playing tough,” one of the sources said. Another OPEC source said that without Moscow there will be no cut in production .

Russia has indicated that it could contribute some 140,000 bpd to a reduction , yet the OPEC insists Russia cut by 250,000-300,000 bpd .

The threat of a build-up in reserves similar to the 2014 oil glut that inflicted a heavy blow to exporting countries such as Venezuela , is augmented by the U.S. output , which is rising at its fastest pace in nearly 100 years.

Permian basin producers

of shale oil in West Texas and New Mexico are expecting to add three pipelines to their distribution net and as much as 2 million bpd in production turning a profit even with prices as low as USD $30 a barrel , in a moment when the two other biggest producers, Saudi Arabia , and Russia are pumping at or near record levels and Mexico’s natural decline from aging fields may be coming to an end.

By the end of 2019 , total U.S. output is expected to rise to 17.4 million bpd , said the United States Energy Information Administration .

At that level, U.S. imports of petroleum will fall to 320,000 bpd , the lowest since 1949 .

Russia

and Mexico are members of the Non-OPEC Ministerial Monitoring Committee . Ronald Buchanan , analyst at Natural Gas Intelligence , told EL UNIVERSAL in English that Mexico could increase its shale oil production , keeping an eye on low costs and planning on a long-term basis following the U.S. and European industry models .

On Wednesday, President Andrés Manuel López Obrador announced a three-year pause in new bidding rounds , arguing that the previous 110 contracts awarded to foreign and Mexican companies had failed to increase oil production.

Editing by Sofía Danis

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