The Organization of the Petroleum Exporting Countries isn’t likely to take any coordinated action on crude-oil output at its meeting on Thursday, representatives said, as the group sees signs of success with its hands-off approach of the past 18 months.
Oil prices have nearly doubled since hitting 13-year lows over the winter, as a global glut that has weighed on the market since 2014 shows signs of unwinding. Rising prices have taken the air out of calls for action within OPEC, the cartel that controls more than a third of the world’s crude-oil production.
There is no specific proposal on production on the agenda of OPEC’s biannual meeting in Vienna, said Falah al-Amri, Iraq’s OPEC envoy. That was echoed by several OPEC representatives who gathered here last week to discuss the gathering.
Saudi Arabia and its Persian Gulf Arab allies in OPEC, such as Kuwait, see rising prices as vindicating the new direction they forged at their November 2014 meeting. They wagered that booming U.S. output would render its most important tool—production cuts—impotent, and that it was better for the group to pump flat out to keep customers, in hopes that the market would balance itself out eventually.
Now, OPEC delegates from Iran, Iraq, Kuwait, Nigeria and others have developed a coordinated talking point: “The market is rebalancing,” which is another way to say the group should stay put.
OPEC expects U.S. petroleum output to fall by 430,000 barrels a day this year because of low prices, eliminating some key competition. Coupled with a string of output disruptions caused by Canadian wildfires and pipeline sabotage in Nigeria, global production and demand are coming back into balance, though a large amount of oil in storage is still weighing on the market.
Even without the supply disruptions and climbing prices, prospects for action were already slim for this meeting.
Tension between Saudi Arabia and Iran—rivals for power in the Middle East—have spilled into oil policy and helped derail a widely expected deal for output curbs among OPEC producers and nonmembers such as Russia.
A significant divide remains between the cartel’s richer members such as Saudi Arabia and the United Arab Emirates, who are content with the status quo, and poorer members like Venezuela and Algeria, which want the cartel to return to its interventionist ways.
“At the moment, OPEC does not have much clout in the oil market,” said Amir Hossein Zamaninia, deputy oil minister in Iran, an OPEC member, in a recent interview.
Analysts said Thursday’s meeting was likely to cement OPEC’s transition from cartel to massive market player whose influence comes from its vast share of the market.
“Saudi can now argue to fellow OPEC members that its strategy is working and to stick to it,” said Adel Hamaizia, an energy researcher at the University of Oxford.
OPEC is expected to admit a 14th member on Thursday, the West African nation of Gabon, adding to 240,000 barrels a day of production to the group. OPEC’s share of world production is expected to rise to 44% by 2025 from 41% now, according to the International Energy Agency, counting both crude oil and a lighter type of crude known as condensates.
The gathering will be the first since Saudi Arabia launched a plan to transform its economy and reduce its dependence on oil revenue.
Among the moves: replacing longtime Saudi Oil Minister Ali al-Naimi and an initial public offering of Saudi Arabian Oil Co., the state-run oil firm known as Saudi Aramco.
Some observers say a publicly listed Aramco may not be able to justify producing less than its full capacity of 12 million barrels a day, as it does now, with output at about 10.2 million barrels a day, according to the IEA. Saudi Arabia’s large spare capacity had long served to give OPEC real clout in the market because it meant the kingdom could ramp up production to deal with oil-supply outages elsewhere in the world.
Mr. Naimi’s replacement, Khalid al-Falih, the former chairman of Aramco, has given little insight yet into where he plans to take the country’s oil production strategy. Saudi oil policy increasingly is seen driven by the kingdom’s Deputy Crown Prince Mohammed bin Salman, a 30-year-old who has pledged to end the kingdom’s “addiction to oil.”
The meeting will be the first one since the end of Western sanctions on Iran’s nuclear program, a move that led to resurgent flows from the country. Iranian officials have said they won’t join any coordinated action on production until the country’s crude output reaches a pre-sanctions level of between 4 million and 4.2 million barrels a day. It is currently producing about 3.7 million barrels of crude a day.
That position scuttled a Saudi Arabian-Russian plan for many big oil producers to pledge not to raise output anymore this year.
OPEC representatives said they don’t expect Saudi Arabia and Iran to compromise on Thursday.
“OPEC now is experiencing a crisis of internal differences,” Russian Oil Minister Alexander Novak said in his Twitter feed Sunday. “Despite this, I wouldn’t write off this organization.”
Source: Wall Street JournalPrevious Next