A bunch of OPEC members are 'at risk for a significant crisis in 2016' (OIL, USO)

RBC Capital Markets

OPEC, the now 13-member oil cartel, decided to maintain production at 31.5 million barrels per day at its meeting in Vienna last Friday.

But the group remained divided over its production ceiling, and failed to reach an agreement.

And that's pretty grim news for about half of the cartel's members, who are already struggling with low prices amid a supply glut.

"[The] OPEC meeting ended without a decision, putting on full display the vast divide between OPEC members," wrote RBC Capital Markets global head of commodity strategy Helima Croft. "We believe that the current OPEC strategy — or non-strategy — leaves a significant portion of the cartel at risk for a significant crisis in 2016."

Notably, there are two camps within OPEC: one that definitely can't handle the stress of lower oil for longer and one that says it can. The crisis-prone, high-risk "fragile five" — Libya, Iraq, Nigeria, Algeria, and Venezuela — want higher prices ASAP as they risk plunging into deeper economic and political chaos, while the relatively better-off Gulf Cooperation Council (GCC) members — Saudi Arabia, Qatar, Kuwait, and the UAE — can sort of weather the lower prices for now.

"This chasm ... was on fully display at the initial morning press conference. Qatar's energy minister ... stated that the non-interference strategy is working [and] predicted the market would balance in 2016," noted Croft. While on the flip side, "Venezuela's energy minister ... warned that the price situation was extremely critical and that prices would drop to $20/bbl without OPEC action."

"The interests of member countries have perhaps never been so far apart," Croft wrote in another note ahead of the meeting.
RBC Capital Markets

However, this wasn't the only major stress-point for OPEC last Friday.

While de facto OPEC leader Saudi Arabia adopted a more conciliatory posture in the days leading up to Friday's meeting, Iran decided to play hardball.

"If anything, it was the Iranians who were publicly displaying a lack of flexibility in the runup to the meeting," wrote Croft. "The Iranian energy minister, Bijan Namdar Zangeneh, ruled out Iran accepting any output restrictions until the country's exports returned to pre-sanctions levels."

That's not exactly surprising, as Iran is on the cusp of reaping serious economic benefits if/when sanctions will be suspended. Still, its "refusal to abide by any output restrictions likely contributed to the lack of any real decision from the cartel," noted Croft. 

And, although Croft doesn't mention this point exactly, it's also worth reiterating that Iran and the Saudis vie for regional hegemony — and it's interesting to see the reversal of fortunes. The former, which is poised to win big after years of incapacitating sanctions, took a tougher stance, while the latter, struggling with budget pressures and rumored internal divisions, took the more "conciliatory" route.

In short, OPEC's lack of real decision betrays the deep divide within the cartel, and that could mean pain for some of its members going in the upcoming year.

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