In potentially groundbreaking news - which failed to generate a market response as it hit at the same time as the FOMC statement - Saudi Arabia’s top government-funded think tank is said to be studying the possible effects on oil markets of a breakup of OPEC, a research effort which the WSJ called "remarkable" for a country that has dominated the oil cartel for nearly 60 years.

The OPEC study aims to “assess the short/medium-term consequences of a dissolution of OPEC,” according to an overview reviewed by The Wall Street Journal. It is intended to determine how the global oil market, and Saudi finances, would look “if coordination between oil producing countries disappear,” according to the overview.

The overview describes two scenarios to investigate, if OPEC isn’t in the picture:

  1. All big oil producers, including Saudi Arabia, act competitively—fighting each other for market share;
  2. Saudi Arabia, instead, attempts to leverage its massive oil output alone to help balance global supply and demand in an attempt to keep oil prices steady—similar to the role that members say OPEC plays today.

The timing of the report, which is hardly a arbitrary, coincides with rising pressures on the Saudi government, including from the U.S., where President Trump has accused the cartel of pushing up oil prices, and from investors who distanced themselves from the kingdom after the brutal killing of a U.S.-based Saudi journalist.

Just as remarkably, while the think tank’s president, Adam Sieminski told the WSJ that the study "hadn’t been triggered by Mr. Trump’s statements", a senior adviser familiar with the project said it provided an opportunity to take into account the criticism from Washington.

Depending on the findings, the study could offer a defense of the cartel and the Saudi role in it; alternatively it could potentially advocate for a repeat of November 2014, when the cartel was effectively dissolved for a period of time.

The research project doesn’t reflect an active debate inside the government over whether to leave the Organization of the Petroleum Exporting Countries in the near term, according to people familiar with the matter.

Careful not to further aggravate political relations with the US, and other nations, senior Saudi officials said the study - which was seen as a high priority economic-policy inquiry, was ordered by Sieminski and "that the analysis isn’t unusual and explores topics his researchers normally delve into."

The concern is that the optics of Saudi Arabia contemplating exiting OPEC at a time when the US crackdown on Iran may remove over 1 million b/d from the market - once the waivers to 8 nations expire - will hardly go unnoticed.

To avoid political overtones, the report is reportedly part of a wider rethinking among senior government officials in Saudi Arabia about OPEC, according to the people familiar with the matter. Officials are grappling with the assumption—shared increasingly in the oil industry—that oil demand will one day peak, the senior Saudi adviser said.

In this context, the study is seen among senior officials as an exercise in gaming out how markets might react if demand falls so much that OPEC loses sway and disbands, the adviser said.

“The kingdom knows demand for oil won’t last forever…so you need to think past OPEC,” the senior adviser said. “You also have a NOPEC act being considered” in Washington.

The think tank, Riyadh-based King Abdullah Petroleum Studies and Research Center, or Kapsarc, bills itself as an independent research institution. Its staff advises dominant Saudi agencies such as Saudi Aramco and the Saudi energy ministry.

Sieminski said the study was building on previous research that looked at the role of OPEC’s spare capacity in stabilizing oil markets. The earlier work concluded that the absence of such a cushion “would lead to a more volatile price environment and be negative for the global economy,” he said.

Meanwhile, even though there is no debate in the Saudi government about disbanding OPEC soon, senior government officials have recently started to question the longer-term rationale for the cartel because of the clout that Saudi Arabia and Russia alone can have on markets, according to another senior Saudi adviser.

Two prominent Saudi government advisers, both central to the formation of the kingdom’s oil policy, are scheduled to meet researchers on the project weekly, according to the overview. Sieminski said contacts with the Saudi energy ministry were to provide data for the study.

While oil has failed to move so far on the report, WTI has dropped for 9 days in a row, and is now in a bear market, down 21% from its October highs...

... as expectations of oil output being removed from the market have been doused after the Trump admin provided critical oil import waivers to Iran's biggest trade partners, thereby having virtually no impact on the price of oil.