A lot of attention has been lavished on Wednesday's OPEC meeting, even though the group's decision probably won't make much long-term difference for oil prices. The Organization of Petroleum Exporting Countries, which pumps 40% of the world's crude, opted at its meeting in Vienna to maintain record production levels to keep the markets well supplied. But even if the group of 11 oil-producing countries voted to trim output to support prices, it wouldn't have meant much. OPEC has little control over its markets nowadays. Its quotas, while easy to digest as news, are a distant second to local politics when it comes to determining how much a member country can pump. "It's hard to think of OPEC in a weakened state," says Jim Williams, an energy analyst at WTRG Economics in London, Ark. "But with oil at $60 a barrel, it doesn't have the ability to control prices." Within OPEC, Venezuela has been struggling to regain lost production after an oil worker strike two years ago. Underinvestment and aging fields drove down output in Iran and turned Indonesia into an oil importer last year. Iraq, which hasn't had to meet the cartel's quotas since the U.S. invasion in 1990, has seen its output decline 15% over the past four years to 1.7 million barrels a day. Rebel attacks on Nigeria's pipelines and platforms have shaved the country's daily output by one-fifth to 2.2 million barrels. OPEC's production ceiling has been at 28 million barrels per day since last July, but the cartel has been pumping less. In February, the group produced 27.8 million barrels, according to figures from the U.S. Energy Department. While OPEC's member countries control three-quarters of the world's crude, the group's influence as a unified body is waning. Saudi Arabia, OPEC's largest member, has an extra 1.1 million to 1.6 million barrels of spare crude, but it can't pump more in the short term. And even if it could, most refiners wouldn't want it because it's high in sulfur. Few refineries are equipped to process heavy, sour crude.
Those supply problems have prompted the cartel to invest in new production. Over the next four years, 10 member countries, excluding Iraq, are expected to spend a total of $100 billion to increase output by 17% to 38 million barrels a day. Still, it might not be enough to boost oil supplies and drive down prices in the long term. World demand is expected to rise 32% over the next nine years to 103 million barrels of crude per day, according to the U.S. Energy Department. With current production capacity at 80 million barrels, that means oil producers need to add a minimum of 23 million barrels just to keep up. Crude production from non-OPEC producers, like Russia, could help alleviate the supply crunch. Through 2010, those countries are expected to add around 1 million barrels of daily crude per year. But underinvestment, aging wells and transportation problems have plagued the Russian oil industry and could doom future projects. Tight supplies and heavy demand are likely to keep oil prices high over the next two years. Most analysts expect prices to remain around $60 to $65 a barrel in 2006. (For Wednesday's oil market story,
click here .) "If demand continues to be strong and supplies are low, we'll need as much oil as OPEC can produce," says Adam Sieminski, chief energy economist at Deutsche Bank in New York. Too bad OPEC doesn't have more oil to help.