Frac­tured OPEC heads to key talks

The Myanmar Times - - Business -

CARTELS only work when their mem­bers stick to­gether – but pre­cious lit­tle unity is likely to be on show among OPEC pro­duc­ers at a key meet­ing in Al­giers to­mor­row.

Mem­bers of the Or­gan­i­sa­tion of the Petroleum Ex­port­ing Coun­tries seem doomed to dis­agree on whether to freeze pro­duc­tion to re­verse a col­lapse in oil prices.

At most, say an­a­lysts, the group will agree on the need to sta­bilise the mar­ket af­ter two years of sur­pluses that have sloshed around global mar­kets, de­press­ing prices.

Early flut­ters of op­ti­mism that the in­for­mal gath­er­ing could ham­mer out a deal to ac­tu­ally drain the sur­plus have yielded to scep­ti­cism.

A pre­vi­ous bid to freeze out­put, led by OPEC linch­pin Saudi Ara­bia, fell apart in Doha in April when Iran re­fused to play ball, ar­gu­ing it needed to bring its pro­duc­tion back up to pre-Western sanc­tions lev­els.

“An agree­ment on a pro­duc­tion freeze ac­cepted by ev­ery­one would be a sur­prise,” said Di­dier Houssin, head of re­search group IFPEN.

“An­a­lysts ex­pect more a calm­ing com­ment on the need to con­tinue to follow the mar­ket ... and to sta­bilise pro­duc­tion. With­out bind­ing mea­sures, with­out spe­cific quo­tas.”

Prices have plunged from peaks of more than US$100 a bar­rel in mid-2014 to near-13-year lows be­low $30 in Jan­uary.

They rose this month when nonOPEC Rus­sia pledged with Saudi Ara­bia to work on ad­dress­ing the sup­ply glut, but the gov­ern­ments pro­vided scant de­tail on their plans.

The OPEC talks will take place on the side­lines of a three-day In­ter­na­tional En­ergy Fo­rum gath­er­ing which be­gan yes­ter­day.

So far the two ma­jor pro­duc­ers have not taken any ac­tion to re­duce the over­sup­ply, which has re­sulted from a boom in US frack­ing and from OPEC’s nearly two-year-old strat­egy to throw open the spig­ots to de­fend mar­ket share.

OPEC chief Mo­hammed Barkindo of Nige­ria has him­self damp­ened ex­pec­ta­tions, de­scrib­ing the meet­ing as con­sul­ta­tive.

On the other hand, mu­tual des­per­a­tion could favour a con­sen­sus, given the toll that low prices have in­flicted on OPEC economies.

Al­ge­rian En­ergy Min­is­ter Noured­dine Boutarfa has notably said OPEC could call a spe­cial de­ci­sion-mak­ing meet­ing in Al­giers.

Bloomberg has re­ported Saudi Ara­bia is will­ing to cut pro­duc­tion pro­vided Iran freezes its out­put at cur­rent lev­els.

Tehran lifted pro­duc­tion to 3.6 mil­lion bar­rels per day last month, ac­cord­ing to the In­ter­na­tional En­ergy Agency (IEA), ap­proach­ing its pre-sanc­tion 4 mb/d lev­els.

Even so, the Saudi con­ces­sion could founder on old ri­val­ries.

“OPEC, in the cur­rent con­text, no longer ex­ists be­cause the po­lit­i­cal di­ver­gences are such that the sec­re­tary gen­eral finds it dif­fi­cult to con­trol any­thing at all,” said Olivier Ap­pert, head of the French Coun­cil of En­ergy.

Like Iran, Libya and Nige­ria are re­luc­tant to limit pro­duc­tion af­ter con­flicts that have weak­ened their economies and left pump­ing be­low ca­pac­ity.

Rus­sia, mean­while, un­der­stands a pos­si­ble 5 per­cent re­duc­tion of its pro­duc­tion to be re­al­is­tic.

For Saudi, a too-sharp up­turn in prices could also back­fire as it would drive pro­duc­tion in the US, which has now adapted to re­cent low pric­ing thanks to tech­no­log­i­cal in­no­va­tion and frack­ing.

Prices have strength­ened since lows at the start of the year and cur­rently stand at around $45 a bar­rel, within strik­ing dis­tance of the $50 to $60 range de­sired by some OPEC mem­bers.

But the glut is such that it looks set to last at least six months longer than pre­vi­ously thought, the IEA said this month, caus­ing prices to fall back. –

Photo: AFP

Noured­dine Boutarfa says OPEC could make a de­ci­sion in Al­giers.

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