Oil prices: More concerns trail OPEC’s no-cut strategy
With the growing concerns about the Organisation of Petroleum Exporting Countries (OPEC) strategy of holding output steady amid plunging prices, the cartel may be divided ahead of its next meeting in June.
Petroleum experts in Nigeria, including the former Minister of Petroleum, Odein Ajomogobia had recently bemoaned the ‘inactions’ of OPEC on the prevailing crude prices.
This move was corroborated by the Iran Oil Minister, Bijan Zanganeh, at the weekend, who declared that the OPEC’s strategy of holding output steady is not working. Zanganeh said the group’s members should discuss production levels before its next meeting in June, adding that a sign of the pain lower prices are causing OPEC’s less wealthy producers.
Oil prices have halved from the $115-a-barrel level hit last June, in a drop that deepened after OPEC refused to cut output, choosing instead to defend market share.
There are allegations that the cartel’s giant Saudi Arabia was the driving force behind the policy shift. Saudi Arabia controls one third of OPEC’s production. “It seems OPEC’s strategy of not cutting output does not work well, because prices are coming down. We haven’t witnessed stable situations on the market.” Zanganeh said.
Iran was among the OPEC members that wanted an output cut at OPEC’s last meeting, in November. But the Gulf OPEC members, who account for more than half of the group’s output, refused to cut without the participation of non-OPEC producers.
The Minister of Petroleum Resources and OPEC President, Diezani Alison-Madueke, had lamented the effect of the plunging oil prices on Nigeria’s economy.
She said Nigeria would call an extraordinary meeting of OPEC if crude oil prices slip any further. “If the price slips any further it is highly likely that I will have to call an extraordinary meeting of OPEC in the next six weeks or so”, she said.
Almost all OPEC countries, except perhaps the Arab bloc, are “very uncomfortable,” she said. Diezani, who also spoke at industry conference in Abuja recently noted that 116 oil companies have cut 2015 upstream budget by about $120 billion.
She therefore urged oil companies operating in Nigeria to exploit alternative funding mechanisms. Meanwhile, Ajumogobia queried the relevance of Nigeria’s membership of OPEC in face of the current economic challenges facing the country.
He said: “It is instructive that OPEC did not intervene in November 2014, as it had done in 2008, 1998 and on numerous prior occasions, to stem the slide of the price, by balancing the supply equation, even in the face of evident oversupply stemming from five million additional barrels from the United States Shale oil.
“At the heart of this matter on this occasion seems to be the desire of individual countries in OPEC, principally Saudi Arabia, and Arab States within OPEC- all with the exception of Libya with significantly increased production capacity- Iran, Iraq, Qatar, and United Arab Emirates (UAE), to protect and maintain their market share through the organisation, even if they have to, as they are indeed doing, individually selling their oil at discounted prices,” he explained.
He said in the past 57 years of crude oil exports by Nigeria, the country had always been exposed to the risk associated with the rapid, unpredictable and substantial changes in oil prices.
Nigeria, Iran, Venezuela and Libya have been pushing for the cartel to cut output in a bid to reverse the more than 50-percent drop in prices since June last year. In November, the 12-member group chose to hold production at 30 million barrels a day. The next official meeting is scheduled for June 5.
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