(…) After spare capacity shrivelled and prices surged from 2005 to 2008, oil ministers acknowledged their powerlessness to stem price rises. Now, producing 2m barrels a day over its 26.8m barrel quota, Opec is nearly as toothless. Between cheating by some members and struggles to meet quotas by others, only pragmatic Saudi Arabia is a true swing producer. Opec is also less fearsome as developed countries generate twice as much output from each barrel of crude as in the 1970s.
Another reason why Opec has lost clout is technological development that price shocks have helped spur. Unconventional sources such as oil sands or biofuels now provide a safety valve for the market if oil companies believe prices will be sustained above $65 a barrel. Go a bit higher and other technologies such as gas or coal-to-liquids become feasible. Sitting on three-quarters of conventional reserves, Opec today resembles the elderly denizens of a posh gentleman’s club – rich but largely irrelevant.
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