Fractured OPEC heads to key talks
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. –
Noureddine Boutarfa says OPEC could make a decision in Algiers.