Qatar Announces Withdrawal from OPEC

December 3, 2018 | AtoZ MarketsQatar plans to withdraw from the organization of countries-exporters of oil (OPEC) from January 2019. This decision was announced on Monday by the new Minister of Energy of the country, Saad Al-Kaabi. What will be the consequences of Qatar's withdrawal from OPEC and the oil prices?

AI Kaabi: Qatar will focus on gas ambitions

According to Saad Al-Kaabi, OPEC has already been notified of Qatar’s plans. At the moment, the OPEC organization consists of 15 countries and the largest oil producer among them is Saudi Arabia. Last year, relations between Saudi Arabia and Qatar sharply deteriorated, and Riyadh severed ties with Doha.

Doha is one of the smallest oil producers in OPEC, but the country is the world’s biggest liquefied natural gas (LNG) exporter. It is an influential player in the global LNG market with annual production of 77 million tons per year, based on its huge reserves of the fuel in the Gulf. “They are not a big producer, but have played a big part in OPEC’s history,” one of the OPEC representatives stated.

Qatar, which Al-Kaabi said had been a member of OPEC for 57 years, has oil output of just 600,000 barrels per day (bpd), compared with Saudi Arabia’s 11 million bpd. Al-Kaabi, who is heading Qatar’s OPEC delegation, emphasized, that the decision was not politically driven, but is a part of a long-term strategy and the country’s plans to develop its gas industry and increase LNG output to 110 million tons by 2024. Qatar announced its decision two days after Russia and Saudi Arabia agreed to extend the OPEC + treaty on limiting oil production, as Vladimir Putin said after meeting with Saudi crown prince Mohammed in Argentina. During the press conference, the Minister of Energy noted, that Qatar would attend the OPEC group’s meeting on Thursday and Friday in Vienna and would abide by its commitments.

What will be the consequences for OPEC?

Certain analysts suggest, that Qatar withdrawal from OPEC, highlights the growing dominance over policy making in the oil market of Saudi Arabia, Russia and the United States. These countries are the world’s top three oil producers, which together account for more than a third of global output. “It could signal a historic turning point of the organization towards Russia, Saudi Arabia and the United States,” said Algeria’s former energy minister Chakib Khelil, commenting on Qatar’s move. Chakib Khelil who is also an OPEC chairman said, that Doha’s exit would have a “psychological impact” and could prove “an example to be followed by other members in the wake of unilateral decisions of Saudi Arabia in the recent past.” According to the experts, Qatar’s exit from OPEC is the latest example of Qatar charting a course away from its Gulf neighbours since the rift began last year.

Once close partners with Saudi Arabia and the UAE on trade and security, Qatar will now struck scores of new trade deals with countries further afield, while investing heavily to scale up local food production and ramp up military power. “There is a sentiment in Qatar that Saudi Arabia’s dominance in the region and the region’s many institutions has been counterproductive to Qatar,” said Andreas Krieg, a political risk analyst at King’s College London. “It is about Qatar breaking free as an independent market and state from external interference.” Oil surged about 5 percent on Monday after the United States and China agreed to a 90-day truce in their trade war, but prices remain well off October’s peak. Asked if Qatar’s withdrawal would complicate OPEC’s decision on output this week, a non-Gulf OPEC source said: “Not really, even if it’s a regrettable and sad decision from one of our member countries.” Amrita Sen, chief oil analyst at consultancy Energy Aspects, said the move “doesn’t affect OPEC’s ability to influence as Qatar was a very small player.” Al-Kaabi said that the state oil company Qatar Petroleum planned to raise its production capability from 4.8 million barrels of oil equivalent per day to 6.5 million barrels in the next decade. Doha also plans to build the largest ethane cracker in the Middle East. Qatar would still look to expand its oil investments abroad and would “make a big splash in the oil and gas business”, Al-Kaabi added.

Brent Crude Oil Price Technical Analysis

How did the news impact the oil prices? Looking at the weekly technical charts, the price of Crude Oil is in a continuous bearish trend from the last few months. However, just after the news, prices went up to 4% and trading in a bullish trend. But as the technical indicators suggest, the price might stay in a bearish zone in the near term.

RSI (14) is already starting to turn lower as it is pointing toward the overbought zone. This suggests that selling pressure might return soon.

Stochastic is heading upwards, which indicates that the presence of bullish pressure but is also testing the overbought zone. Thus, the price could lead to crude oil to follow the suit as sellers return.

The 100 SMA is below the long-term 200 SMA zone, which suggests that the path of least resistance is still towards the downward direction. The above-mentioned case indicates the bearish pressure might stay on.

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