OPEC must close ranks

Is the Organization of Petroleum Exporting Countries (OPEC) still relevant? Does it still wield influence in the world oil market? The answer to both is yes, but not as much as it once was or did. Its relevance is determined by how it uses whatever is left of its political and economic clout. OPEC today may account for only 40 percent of the world's oil output, but it still controls two-thirds of the world's oil reserves. That is still some clout.

The oil cartel wound up its 103rd conference in Jakarta yesterday with all 11 members pledging, for the umpteenth time, to abide by the output quota each of them has been assigned. The meeting saw a brief tug-of-war between members who called for higher output to meet an expected increase in demand next year, and those who wanted to limit production to jack up prices. Saudi Arabia, which belonged to the first camp and is the largest producer in the OPEC pack, flexed its muscles and won the battle.

The group agreed to raise the production ceiling to 27.5 million barrels per day (bpd) starting in January, from the current ceiling of 25.03 million bpd. The move, however, is academic. OPEC, which is notorious for breaking its own commitments, has already been producing in excess of its ceiling. OPEC's total output in October is estimated at 28 million bpd. Assuming that OPEC members this time really mean to abide by their pledge, they will effectively have to cut their output beginning next month.

Not unexpectedly, the market's reaction to OPEC's move to raise its production ceiling has been lukewarm, if not downright indifferent. Gone were the days when OPEC's conferences were taken seriously and its decisions caused upheavals not only in the oil markets, but the currency and stock markets worldwide. Those were the days when OPEC still controlled a sizable portion of the world oil supply and that it could dictate, to a limited extent, which way prices should go. Now, more and more countries have joined the ranks of oil producers but without wanting to join the cartel. The endless breaking of quotas and the presence of new producers have cut OPEC's power, and respect, to size.

While OPEC no longer calls all the shots, it still has some influence on the world oil supply. By juggling output, it could affect prices a little. OPEC officials and market analysts predict that, barring any major surprises, like a war, world oil prices should settle between $18 and $20 a barrel next year.

Putting aside the cool market reaction, OPEC's decision to raise its output ceiling, although seemingly a moot point, is still a landmark. This is the first time in four years that OPEC has officially raised its output ceiling. It finally recognizes the need of its members for more dollar revenues to finance their economic development by pumping out more oil.

Although Indonesia has managed to progressively reduce its heavy dependence on oil exports over the years, the higher output quota allotted to Indonesia could cushion the impact of the economic crisis it is facing. Indonesia's quota has been raised from 1.33 million bpd to 1.46 million. Indonesia has been caught between the need to preserve its precious oil reserves and pumping more oil to earn the dollars. Given the economic turmoil, OPEC's decision to pump more oil was timely for Indonesia.

As OPEC ministers return home bringing the good news, there is still a lingering question about the role the organization should play given its reduced influence and respectability. OPEC, if it acts together, is still a market leader. That entails responsibilities like ensuring adequate supply and stable prices, besides promoting the welfare of the people of its member countries.

Today, market stability and continued inflow of dollars are their main objectives. Some day -- soon perhaps -- OPEC could take environmental questions into consideration in forming policies. Shared objectives underscore the relevance of OPEC. But once they agree to their common objectives, they have to close ranks to earn the respect of the rest of the world.