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Opec minus Qatar

News of the country leaving Opec is unnerving for the oil market and the market participants are yet to digest the full import of this development.

Opec minus Qatar

Representational Image. (Photo: Getty Images)

The Organisation of Petroleum Exporting Countries will be weaker when 2019 unfolds. Qatar has decided to pull out of the cartel and would rather be riveted to gas production.

While the reason proffered may be intended for the consumption of Opec members, the compulsion may not be wholly unrelated to the political and economic boycott of Qatar imposed in June 2017 by Saudi Arabia, Opec’s largest member and its de facto leader, along with three other Arab states ~ the United Arab Emirates, Bahrain and Egypt.

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In effect a swathe of the Arab world had isolated Qatar by imposing a trade and travel embargo over allegations that the government in Doha supports terrorism. The charges have been consistently denied by Qatar. Yet Monday’s pullout mirrors the friction and turmoil in the Arab region.

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News of the country leaving Opec is unnerving for the oil market and the market participants are yet to digest the full import of this development. Basically, Qataris have brought the biggest weapon out and it only means more instability in relations between Qatar and Saudi Arabia, the latter now embroiled in dissension within royalty.

Qatar is one of the cartel’s smallest oil producers, but it does boast certain inbuilt advantages. It is the world’s largest exporter of liquefied natural gas. The withdrawal from Opec isn’t exactly a knee-jerk reaction to Saudi muscle-flexing. To counter the desert kingdom, the gulf state has reviewed ways to enhance its role internationally, notably its gas industry.

Qatar wants to ramp up liquefied natural gas production from 77m to 110m tonnes a year. The decision to withdraw has not been easy after 57 years of Opec membership, and the country’s impact on the cartel’s production decisions is as yet unclear.

Qatar will attend a meeting this week to discuss cutting output. The government has let it be known that it will abide by its global commitments like any other non-Opec oil producer. Qatar pumps about 600,000 barrels a day, while Saudi Arabia, the world’s biggest exporter, produces 11m barrels.

The emirate’s withdrawal comes as other non-Opec countries such as Russia have gained more clout alongside Saudi Arabia in formulating oil policy. Qatar’s energy minister, Al-Kaabi, has stressed that the move is a “strategy decision”. Doha plans to build the largest ethane cracker in the Middle East.

Ergo, Qatar’s Plan-B in the crude oil sector is very much in place. But the dynamics of demand and supply could go haywire should individual countries follow in the footsteps of Qatar. There may be hope yet as Saudi Arabia and Russia are committed to keep the supply under control.

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