Saudi Plans Sounding OPEC Death Knell

Saudi Plans Sounding OPEC Death KnellSaudi Plans Sounding OPEC Death Knell

Saudi Arabia, one of the founders of OPEC, is sounding the group’s death knell.

The world’s biggest crude exporter has already undermined OPEC’s traditional role of managing supply by choosing to boost output to snatch market share from higher-cost producers, particularly US shale drillers, and crashing prices in the process.

Now, under the economic plan known as Vision 2030 promoted by Deputy Crown Prince Mohammed bin Salman, the government is signaling it wants to wean the kingdom’s economy off oil revenue, lessening the need to manage prices.

Moreover, the planned privatization of Saudi Arabian Oil Company will make the nation the only member of the Organization of Petroleum Exporting Countries without full ownership of its national oil company, Bloomberg reported.

“We don’t care about oil prices,” Prince Mohammed said in an April 25 interview in Riyadh. “$30 or $70, they are all the same to us. We have our own programs that do not need high oil prices.”

“The main takeaway from Saudi Vision 2030 is that there’s just no role for OPEC,” Seth Kleinman, head of European energy research at Citigroup Inc. in London, said by phone. “Or, you can have an OPEC without Saudi Arabia, which just is not much of an OPEC.”

OPEC, founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, gained members and geopolitical clout as more producers nationalized their energy resources and created state-run companies to exploit them. By setting production quotas for individual countries, the group tried to prevent prolonged periods of oversupply.

But over the past few years, Saudi Arabia unilaterally decided that OPEC would not cut output and instead pump as much as its members wanted to defend sales against higher-cost crude.

The kingdom raised production to a record in July, exacerbating the glut and leading prices to plunge by more than half. The strategy now seems to be working—prices have rallied about 80% from a 12-year low in January—giving Saudi Arabia little reason to change course.

“The death of OPEC has been long foretold, but it looks like the Saudi 2030 Vision is really the obituary notice,” said Citigroup’s Kleinman. “The Saudi Aramco IPO and the presumption that there’s going to be a much higher degree of autonomy within Saudi Arabia—there is no real role for OPEC.”