VIENNA: Mixed signals from OPEC ministers caused fresh volatility on oil markets Monday ahead of a meeting in Vienna meant to nail down a deal reducing the cartel’s output by up to a million barrels per day.
Saudi Arabia’s energy minister appeared to suggest on Sunday that Riyadh could live with OPEC failing to agree its first cut in output in eight years, saying recovering demand would “stabilise” prices next year anyway.
“We don’t have a single path which is to cut production at the OPEC meeting, we can also depend on recovery in consumption, especially from the US,” Saudi media quoted Khaled al-Falih as saying.
But amid concerns that OPEC might not be able to reach an agreement after all, Russian President Vladimir Putin and his Iranian counterpart Hassan Rouhani on Monday expressed support for plans by the cartel to limit its output.
In a telephone conversation, the Iranian and Russian leaders said OPEC’s efforts were “an essential element” for returning stability to global oil prices, a Kremlin statement said.
But they stopped short of saying they would cut their own production levels.
Russia, while not a member of OPEC, is currently pumping some 11 million barrels per day (bpd), a level not seen since Soviet days. Hit hard by the low price and Western sanctions, Moscow has said it is ready to freeze output but not to cut it.
Iraqi Oil Minister Jabbar al-Luaibi meanwhile sounded an upbeat note Monday as he arrived in Vienna ahead of Wednesday’s meeting, saying he was “optimistic” that the 14-country group would strike an accord.
This was echoed by Venezuela’s similarly “optimistic” Oil Minister Eulogio del Pino as he arrived in Algiers for talks with his Algerian counterpart.
The two were due to head to Moscow together to persuade non-OPEC Russia to also tighten the spigots. “OPEC and non-OPEC countries must take action,” del Pino was quoted by local news agency APS as saying.
Around 1715 GMT, US benchmark West Texas Intermediate for delivery in January was up $1.59 to $47.65 per barrel, winning back most of Friday’s heavy losses.
“Just as everyone in the market feared, there is intense volatility,” said ETX Capital analyst Neil Wilson. “No one knows if an agreement to freeze output is just wishful thinking or pretty nearly a done deal.”
Devil in the detail
In September the cartel agreed in principle to lower production to 32.5-33.0 million bpd, meaning a cut of between 600,000 bpd and 1.1 million bpd from current levels.
In addition it reportedly wants non-OPEC countries to reduce output by 600,000 bpd.
OPEC hopes this will reduce the mammoth global supply glut and push the market price of oil above $50 a barrel.
It also marks a reversal of OPEC kingpin Saudi Arabia’s two-year-old strategy of flooding the market to squeeze out rivals, in particular US shale oil producers, which need a higher oil price to make a profit.
But it remains to be agreed what size cuts, if any, each of OPEC’s members will make, particularly Iraq and Iran, the cartel’s next-biggest producers. Libya and Nigeria want to be exempted.
Iraq has said it will cut output but that it is short of money needed to fight Islamic State extremists. It also disputes with OPEC the level of its current output. Luaibi was tight-lipped on Monday.
Iran, free to export oil since last year’s nuclear deal, won’t cut production until it has reached pre-sanctions levels. It is also a fierce regional rival of Saudi Arabia, engaged in a proxy war in Yemen and backing different sides in Syria.
Prices at the pump
If OPEC does manage to get a deal and oil prices rise — though the increase may be modest — then this will hit the wallets of billions of consumers worldwide, although on balance it could give the global economy a fillip, experts say.
Low oil prices have blown a massive hole in producers’ finances in recent years, hurting not just more vulnerable OPEC members like Venezuela and Nigeria but even the Gulf states.
Saudi Arabia, once seen as fabulously wealthy, is projecting a budget deficit of $87 billion in 2016. Low prices have also hit investment in oil facilities, raising the prospect of supply problems in the medium term.
But at the same time, the bad news for OPEC is that higher oil prices may also see more US shale oil producers return to the market.
The US industry could also be given a helping hand by president-elect Donald Trump.
Trump has promised to eliminate regulations restricting fracking, support oil and gas pipeline construction and open restricted federal lands and offshore areas for exploration, including Alaska. AFP