Qatar’s exit from OPEC, explained

By Elton Gomes

On Monday, Qatar said it will be pulling out of the OPEC (Organization of the Petroleum Exporting Countries), but would attend the group’s meeting this week. The oil-rich nation said that the decision meant that Doha could focus on cementing its position as the world’s top liquefied natural gas (LNG) exporter.

Qatar’s Minister of State for Energy Affairs Saad al-Kaabi made the announcement in a news conference, wherein he said that Qatar would continue to abide by OPEC’s commitments. “Qatar has decided to withdraw its membership from OPEC effective January 2019 and this decision was communicated to OPEC this morning,” the minister said, Reuters reported.

Qatar is one of the smallest oil producers in the region, but is the world’s largest exporter of liquefied natural gas. Al-Kaabi said the gulf state had looked at ways to enhance its role internationally, including focusing on its gas industry. Qatar is making efforts to increase liquefied natural gas production from 77 million to 110 million tonnes a year.

Al-Kaabi further said the decision to withdraw had not been easy after 57 years of OPEC membership, though he noted that the country’s impact on OPEC could be minimal. Qatar pumps about 600,000 barrels a day, while Saudi Arabia, the world’s biggest exporter, produces 11 million barrels.

Qatar’s withdrawal comes as other non-OPEC countries, such as Russia, have gained more influence alongside Saudi Arabia in determining oil policy.

Qatar will officially exit OPEC on January 1, 2019, al-Kaabi said on Monday. The gulf nation will be attending the group’s winter meeting in Vienna, which is scheduled to begin on Thursday.

Why did Qatar pull out?

Qatar Petroleum, the country’s state oil company, made the announcement in a series of tweets.

“The withdrawal decision reflects Qatar’s desire to focus its efforts on plans to develop and increase its natural gas production,” Saad Sherida Al-Kaabi, the country’s newly-appointed minister of state for energy affairs, was cited as saying in one of the tweets, as per a report in CNN.

The gulf nation did not make any allusions to the ongoing dispute with other Gulf states in its announcement. Instead, it emphasized plans to cement its position as the world’s leading supplier of gas. Qatar exports currently account for about 30% of global demand.

“Achieving our ambitious growth strategy will undoubtedly require focused efforts, commitment and dedication to maintain and strengthen Qatar’s position as the leading natural gas producer,” Al-Kaabi said, as per the CNN report.

What does this mean for OPEC?

Qatar is the first Middle Eastern country to pull out of OPEC, which was founded in 1960. Indonesia left the group in 2009 before rejoining for less than a year in 2016. Gabon rejoined in 2016 after an absence of more than 20 years.

“It’s a disappointment for OPEC because they’ve been trying to attract members,” Robin Mills, CEO of Qamar Energy, a consultancy firm based in Dubai, told CNN.

However, other experts claim that Qatar’s surprise decision is unlikely to have any major impact on global energy markets.

Ehsan Khoman, head of Mena research and strategy at Japanese bank MUFG, said that Qatar’s exit is largely symbolic as it is a negligible member of the group.

“More importantly is the timing of Qatar’s withdrawal – just three days before Opec meets in Vienna to finalise the production cuts. This suggests that Qatar may have an agenda to raise production while others in Opec are curbing production, although Qatar’s oil output has been very steady in recent years with limited prospects of increases given maturing fields,” said Khoman, the Khaleej Times reported.

Algeria’s former energy minister and OPEC chairman, Chakib Khelil, said Qatar’s exit could mark a historic turning point of the organisation in terms of Russia, Saudi Arabia, and the United States.

Qatar-Saudi Arabia ties

Qatar’s Al-Kaabi said that the decision was not linked to the political and economic boycott of Doha. Since June 2017, OPEC kingpin Saudi Arabia — along with Bahrain, Egypt, and the United Arab Emirates — cut trade and transport ties with Qatar. Saudi has accused Qatar of supporting terrorism and their regional rival, Iran. Qatar denies the claims, and has said that the boycott hampers its national sovereignty.

Although Qatar insists that its decision was not political, its withdrawal could be an indicator that Qatar and its Gulf Arab cousins are growing further apart due to deteriorating relations.

After Saudi Arabia maintained its boycott, Qatar has sometimes pursued its own foreign policy goals, which were contrary to its fellow Sunni states.

Oil price volatility

Oil prices surged about 5 percent on Monday, after the United States and China agreed to a 90-day truce in their trade war. However, Brent crude was still trading at around $62 a barrel, well below October’s peak of more than $86.

Concerns about oversupply have reduced oil prices. US crude futures hit a four-year high above $76 a barrel in early October. As of Monday, December 3, they were trading at around $53 a barrel.

Oil prices have fallen more than 25 percent since climbing to a four-year peak in early October. Such a fluctuation in prices came amid intensifying concerns of oversupply and worries over slowing economic growth.

However, growing expectations of a fresh round of production cuts later this week and a temporary truce between the U.S. and China helped crude futures make up for some of their recent losses on Monday.

Expectations will be high that the OPEC will be able to reach an agreement on output this week. This comes after Russian President Vladimir Putin said that he and Saudi Arabia’s Crown Prince Mohammed bin Salman “have agreed to extend our agreement” to limit production. Though Russia is not an OPEC member, it is one of the biggest oil producers outside the group.

Elton Gomes is a staff writer at Qrius

OPECQatarSaudi Arabia