* Country quotas central to OPEC policy for years
* Quotas ditched, credibility undermined
* Production swings depend largely on Saudi Arabia
VIENNA, June 13 (Reuters) - For years OPEC meetings got
bogged down in bouts of jealous haggling over member country
crude output quotas, a national badge of oil power.
But in 2008 the Organization of the Petroleum Exporting
Countries decided not to disclose quotas. Then, in December
2011, it lost patience with the endless arguments and discreetly
dropped them altogether, settling for an overall group output
limit.
That cut out some of the quarrelling but left a big
question: how to police production and maintain credibility,
especially when the lion's share of spare capacity for
adjustment is in the hands of one member - Saudi Arabia.
"The organization as a whole has not really been
functioning," said Leo Drollas, chief economist at the Centre
for Global Energy Studies.
"OPEC has the chance to re-engage, but of course it means
setting individual quotas and sticking to them, which is fraught
with peril."
Monitoring individual output carefully doesn't matter much
when oil supplies and prices are rising, as was the case for the
year until March. But with crude now falling -- down $30 since
March to below $100 for Brent -- quotas may be needed again if
oil traders are to be convinced that OPEC means business.
When it last met in December, OPEC agreed to pump 30 million
barrels per day (bpd), its first new output agreement in three
years. It did not set member country quotas.
The target was never adhered to and production has risen by
1 million barrels per day in 2012 to almost 32 million bpd, a
four-year high, despite tightening sanctions on Iran that cut
its exports.
The extra oil, much needed to stem a price rise to $128 a
barrel, has come from Saudi Arabia, Iraq and the return to full
output from Libya after civil war.
OPEC meets again on Thursday but now prices are falling and
quotas are beginning to look attractive again.
"There should be individual targets. Last time we left it
open," said an OPEC delegate. "For it to work, there have to be
individual targets."
"This is not an easy issue, to divide the ceiling between
the member countries," said another.
Ministers are expected to take the easy option and leave
policy unchanged.
Tension between Saudi Arabia and Iran, due in part to a rise
in Saudi output that has softened the impact of reduced Iranian
exports, has added to the challenge.
"I do not think they will agree on new quotas yet," said
Samuel Ciszuk, consultant at KBC Energy Economics.
"One reason why is probably that finding common ground
between mainly Iran and Saudi will be hard still, particularly
given their conflicting interests in view of the upcoming
sanctions."
DELICATE COURSE
That means OPEC's output policy will be determined by what
Saudi Arabia -- the only producer holding spare capacity --
thinks the market needs, supported by its Gulf Arab allies the
United Arab Emirates and Kuwait.
"The political feud between Saudi Arabia and Iran over
Syria, Bahrain, nuclear etc. has transformed OPEC into a
meaningless gathering," said Olivier Jakob, oil analyst at
Petromatrix.
"Saudi Arabia will do what it wants and the formal
communique will have no significance for the realities of crude
oil flows."
Drollas believes OPEC will need to reduce output later this
year to prop up prices and says that could be a time for it to
become more relevant, collectively, to the market.
Setting new individual OPEC output levels could involve
steering a delicate course around a number of stumbling blocks.
For one, the oil industries of Iran and Iraq, longstanding
OPEC rivals, are heading in different directions. Iraq has
expanded supplies in 2012 as an increase in export capacity
comes on stream. It is gaining on Iran, traditionally OPEC's
second-largest producer, whose output is falling.
Production in Iran is expected to fall in the second half of
the year should the European Union ban on its crude starting on
July 1 take full effect. By contrast, Angolan supply is expected
to rise in the next few years as new fields come on stream.
Also, in order to decide meaningful targets, OPEC members
would need to agree on what they actually produce.
OPEC itself earlier this year highlighted the lack of widely
accepted figures on its own production by starting to issue
member-countries' own production data alongside figures from
media and consultancy sources, in its monthly report.
Iran, Venezuela and Kuwait stand out for saying their
production is significantly higher than media sources estimate.
Without a deal to set individual quotas, or even an overall
ceiling closer to OPEC's actual output of 31.6 million bpd, the
focus is likely to remain on unilateral output moves by Saudi
Arabia and whether it trims from the extra crude it has pumped
to keep prices near its $100-a-barrel desired level.
One virtue of the present quota-less arrangement is that
such adjustments do not need any formal OPEC consent.
"It is very easy for Saudi and its allies to just start
throttling back as soon as they see fit, without even having to
justify the action particularly," said Ciszuk.
"Still, this will not likely come as a decision during the
meeting. They have already effectively reserved themselves the
ability to act with market swings as they please in the current
situation."
(Reporting by Alex Lawler, editing by William Hardy, Richard
Mably)