OPEC seeks to nail down oil output cut
OPEC will seek Wednesday to defy expectations and finalise a deal in Vienna reducing its oil output for the first time in eight years in an effort to boost painfully low crude prices.
It remained to be seen however whether the cartel’s big guns Saudi Arabia, Iraq and Iran can overcome their fierce rivalries and agree who will do most of the heavy lifting.
If they fail to agree a deal, experts expect oil prices, at under $50 per barrel already less than half 2014 levels, to head further south perhaps to $40 or even $30.
In addition, a failure in Vienna would deal a further blow to the already damaged credibility of the Organization of the Petroleum Exporting Countries, 56 years after its creation.
Arriving in the Austrian capital on Tuesday, Algerian Energy Minister Noureddine Bouterfa appeared hopeful.
“The discussions are going in the right direction,” he told reporters.
Analysts, however, took a different view.
“We now see a very low chance for an OPEC cut,” said Bjarne Schieldrop at SEB.
“Now it becomes imperative to save face. To save the appearance that OPEC matters. Kicking the can to the next OPEC meeting in half a year’s time,” he said.
– Bad omens –
In September the cartel agreed in principle to lower production to 32.5-33.0 million barrels per day (bpd), meaning a cut of between 600,000 and 1.1 million bpd.
But finalising the agreement has proven difficult, with Iran keen to increase oil output to pre-sanctions levels and Iraq saying it is short of money to fight Islamic State extremists.
On Tuesday Iranian Oil Minister Bijan Namdar Zanganeh sought to assuage fears the bloc might not come through with an agreed cut — though he did not announce any change in his government’s position.
“We continue to implement that level of production that we decided in Algeria,” Zanganeh said.
OPEC kingpin Saudi Arabia had already laid the groundwork for a failure by indicating on Sunday that it was prepared to leave Vienna without a deal.
Recovering demand, said Saudi Energy Minister Khaled al-Falih — who also arrived in Vienna on Tuesday but made no immediate comment to reporters — would “stabilise” prices in 2017 anyway.
– ‘A clever game’ –
Emirati Energy Minister Suhail al-Mazrouei echoed the Saudi argument that, with or without a deal, the market would correct itself in 2017.
A deal is still necessary, however, “to help the market recover faster than waiting six months” for the next OPEC meeting, Mazrouei said.
“I am optimistic” that an agreement will be reached, he added, however, “everyone needs to be participating.”
Fawad Razaqzada, a market analyst at Forex.com, took the view that Iran and Iraq were continuing to show resistance as a way to turn the tables and put pressure on Saudi Arabia.
“Expect to hear more tit-for-tat exchanges leading up to and during the meetings tomorrow. But Iran is playing a clever game,” he said.
“They know full well that Saudi Arabia is desperate to see higher oil prices, despite the latter putting on a brave face.”
Since OPEC’s 14 members produce only a third of the world’s oil, their ability to reduce the global supply glut and influence prices is limited.
But the cartel’s efforts to convince other countries, not least Russia which pumps 11 million bpd, to reduce output as well have fallen flat.
Hit hard by the low prices and Western sanctions, Moscow has said it is ready to freeze output but not to cut it.
Russian Energy Minister Alexander Novak pulled out of an expected visit to Vienna, seeing “no need” to talk to the cartel while there is no agreement.
– Shot to bits –
While consumers might not welcome the more expensive fuel that a deal would bring, OPEC members’ public finances have been shot to bits by two years of rock-bottom prices.
It has exacerbated an already desperate situation in Venezuela, where Human Rights Watch says food and medicine shortages are so bad that there is a “profound humanitarian crisis”.
Even fabulously wealthy Saudi Arabia has slashed salaries and spending and is on course for a budget deficit of $87 billion in 2016, owing foreign firms billions in unpaid bills.
This in turn has hit investment in oil facilities, raising the prospect of oil shortages and “shocks” further down the line, the UAE’s Mazrouei said.
Further downwards pressure on oil prices could come from the United States, where president-elect Donald Trump’s promise to boost the domestic oil sector, leading to yet more crude flooding the market.
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