OPEC maintains output. Is anyone steering oil markets?

[Editor's note: This piece has been updated with OPEC's decision.]

The Organization of the Petroleum Exporting Countries (OPEC) met Friday amid an unusual level of uncertainty, even for a market as volatile as global oil.

For decades, the 12-nation cartel has held sway over oil, coordinating production levels among its members to keep crude prices high enough to suit national budgets, but not so high as to crimp the global economy. But in recent years, a rising tide of oil production elsewhere has significantly eroded OPEC's influence, and the group seems increasingly content to let markets move without intervening.

OPEC officials announced in Vienna Friday they would stay the course – keep oil production steady despite concerns about a supply glut. The laissez-faire approach suggests a scenario as liberating as it is frightening: If OPEC isn't steering the ship, perhaps nobody is.

Many see that as a reason to celebrate. A post-cartel oil market might be more efficient, less speculative, and better linked to changes in supply and demand. But there are downsides to decentralization, too. Conflict is flaring across the Middle East, and inching closer than before to major centers of oil production and transport. Should a major disruption occur, would anyone intervene to calm oil traders who are closely watching unrest in Yemen, Iraq, and elsewhere?

"We should be concerned that there is no adult on the playground right now," says Brenda Shaffer, a professor at Georgetown University who specializes in energy and foreign policy. "This is generally the situation, but the problem is that now there are on some big bullies working on the yard." 

The Islamic State continues to wreak havoc in Iraq and Syria, but Ms. Shaffer says the greater concern now is Saudi Arabia's conflict with Houthi rebels in Yemen – largely seen as a proxy war between Shiite Iran and Sunni Saudi Arabia. The fighting is going on just across the border from the world's largest oil exporter and along a waterway through which 5 million barrels of oil traveled per day last year.

If it became too dangerous for tankers to navigate the so-called Bab el-Mandeb strait, it would add at least an extra $3 to $4 per barrel in shipping costs, according to a recent analysis by Washington-based Securing America's Future Energy. A complete shutdown of the strait would add $10. 

To be sure, no major oil disruptions have occurred from any of these conflicts, and Iraq even manages to keep production levels steady amid the unrest. Oil production continues to grow in the US, Canada, and elsewhere, so a disruption in the Middle East might not have the same impact it once did. 

Non-OPEC production rose by 2.2 million barrels a day to 52.6 million barrels a day in 2014, according to Wood Mackenzie, a consultancy based in Scotland. That growth is expected to slow to 1 million barrels a day in 2015 and 0.5 million barrels a day in 2016, Wood Mackenzie estimates. With oil prices roughly half they were a year ago, producers across the globe are scaling back investments in future projects, and doubling down on their most lucrative assets.

For that reason, OPEC says its strategy of letting oil prices fall to curtail competitors' output is working.

"Demand is picking up. Supply is slowing. This is a fact. The market is stabilizing," said Saudi Oil Minister Ali al-Naimi, as reported by AFP. "You can see that I am not stressed, that I am happy."  

Not every OPEC member is happy. Smaller, more vulnerable members like Ecuador, Venezuela, and Nigeria are struggling with oil prices hovering around $60 – far below what those oil-based economies need to balance their budgets. If Iran follows through with April's nuclear deal, it could add up to another million barrels of oil per day onto the oversupplied market. US shale producers have proven surprisingly resilient, increasing oil output even as the number of drilling rigs plummet. Even OPEC itself is producing about a million barrels per day more than what it says is its official ceiling. 

With all of these open-ended questions and perceived paradoxes, major investors have been withdrawing bets on oil ahead of this week's meeting. The number of total bets on rising or falling oil prices by hedge fund managers and other investors fell to its lowest level in nine months on Thursday, according to the Wall Street Journal. 

"I’m struck by the amount of acknowledged uncertainty," says Michael Levi, a senior fellow in energy at the Council on Foreign Relations. "A year ago there was plenty of uncertainty, but people just didn’t know it. People knew what was going to happen – except they were wrong. Now, there seems to be a lot less confidence in oil markets. People have views, but they are 65 percent odds rather than 95 percent odds."