OPEC fails to stop falling oil prices. Does the cartel still have sway?

Officials with the Organization of the Petroleum Exporting Countries (OPEC) left a meeting this past Friday without a plan to deal with oil prices that have fallen 40 percent in the past year. 

It's an early Christmas gift for the oil-consuming public and the global economy, but it raises questions about what could prompt OPEC to act. This inaction clears the way for oil prices to drop even further into next year, The Wall Street Journal reported. Low oil prices act as an economic stimulus to many oil-dependent nations. 

"Any tiny risk that OPEC actually might do something during the next 6 months is completely off the table after Friday's meeting," said Bjarne Schieldrop, SEB Markets chief commodities analyst, according to the Journal. "With this risk out of the picture, the oil price declines further." 

Oil prices (now hovering at around $40 per barrel) have not dropped enough yet to force the cartel to act, global oil expert Larry Goldstein of the Energy Policy Research Foundation told The Associated Press a year ago, citing the drop from $147 to $34 that prompted a unified OPEC response in 2008. It seems prices still haven't fallen low enough for long enough to bring action as a cartel. 

"(OPEC) is a crisis-management entity," Goldstein told the AP. "As a cartel, OPEC hasn't been functional for several decades."

Some other analysts have agreed that years of inaction show that OPEC – the group that single-handedly shifted the world economy in the 1970s – is not what it used to be.

"OPEC countries do exactly what we would expect them to do if there were no such thing as OPEC," Jeff Colgan, a Brown University political science professor who studies OPEC, told the Associated Press.

It could also show that Saudi Arabia is playing a sophisticated game with long-term, geopolitical stakes, Roby Barrett, an expert on oil and the Persian Gulf at the Middle East Institute in Washington, D.C., told The Christian Science Monitor in an interview. What Americans view as good news at the gas pump is also good news to the government officials in charge of Saudi Arabia's foreign policy.

"All of this railing in the newspapers that the Saudis are in deep, deep trouble – the Saudis are the ones causing the trouble," Mr. Barrett says. "[The rest of] OPEC doesn't have a choice because they have to have the money [from oil exports]."

Pulling the bottom out from oil prices is a game Saudi Arabia is both well-equipped for and experienced at playing. Barrett says Saudi Arabia's oil production capabilities are so high and its population so small that it can handle low oil prices much better than its geopolitical rivals in Iraq, Russia, and Iran.

Saudi Arabia's decision to keep oil production high could mean that they still have enough cash to withstand low oil prices, and those will be especially destructive to the economy of regional rival and fellow oil producer Iran. Another Saudi target appears to be America's burgeoning shale-oil industry, writes energy blogger Kurt Cobb.

"The oil cartel explicitly stated at its most recent meeting that it is trying to destroy US tight oil production by making it unprofitable. One of the things a cartel can do – if it controls enough market share – is destroy competition through a price war."