Saudi Ara­bia sig­nals it’s had enough of OPEC+ quota cheats

Muscat Daily - - BUSINESS -

Lon­don, UK – For the last year, Saudi Ara­bia has largely turned a blind eye to cheaters within the OPEC+ al­liance, cut­ting its own out­put more than agreed to off­set over-pro­duc­tion from the likes of Iraq and even Rus­sia. Now, Riyadh’s had enough.

Prince Ab­du­laziz bin Sal­man, who took over from Khalid al Falih in Septem­ber, will likely use his first OPEC meet­ing as Saudi oil min­is­ter this week to sig­nal OPEC’s dom­i­nant pro­ducer is no longer will­ing to com­pen­sate for other mem­bers’ non-com­pli­ance, ac­cord­ing to peo­ple fa­mil­iar with the king­dom’s think­ing. OPEC meets in Vi­enna on De­cem­ber 5, fol­lowed by the larger OPEC+ al­liance, which in­cludes Rus­sia, the next day.

“Saudi Ara­bia is taking a harder line than in the past,” said Am­rita Sen, chief oil an­a­lyst at con­sul­tant En­ergy As­pects Ltd in Lon­don. “Riyadh is mak­ing very clear that they don’t want to shoul­der all the cuts alone.”

The will­ing­ness to tol­er­ate cheat­ing was a key part of the ‘what­ever it takes’ pol­icy to sup­port oil prices that Falih set out in late 2016, bor­row­ing a line from cen­tral banker Mario Draghi.

Falih paid lip ser­vice to deal­ing with the cheat­ing, try­ing to ca­jole OPEC+ na­tions to cut out­put as much as they had promised. But when his ad­mo­ni­tions failed and oil prices fal­tered, en­dan­ger­ing the ini­tial public of­fer­ing of state oil pro­ducer Saudi Aramco, he sim­ply de­cided to bear the bur­den. Ear­lier this year, in an abrupt change to decades of Saudi oil pol­icy, Riyadh cut pro­duc­tion far be­low their agreed tar­get.

Whether the new pol­icy sim­ply rep­re­sents a shift in tone, or a more mean­ing­ful change isn’t yet clear. Saudi of­fi­cials pri­vately say Prince Ab­du­laziz will sim­ply re­it­er­ate the decades-long Saudi mantra that ev­ery­one needs to con­trib­ute to make the pro­duc­tion cuts suc­cess­ful.

The prince al­ready made the point when he at­tended an OPEC+ com­mit­tee meet­ing in Abu Dhabi in Septem­ber. “Ev­ery coun­try counts re­gard­less of its size,” he had said.

The cheat­ing has been wide­spread. Iraq, for ex­am­ple, should be pump­ing no more than 4.51mn bar­rels per day (bpd); but in some months it pro­duced nearly 4.8mn bpd. Kaza­khstan ac­cepted a limit of 1.86mn bpd, how­ever, it has pro­duced closer to 1.95mn bar­rels. Nige­ria agreed a quota of 1.68mn bar­rels a day, but has reg­u­larly pumped more than 1.8mn bpd. Rus­sia has pumped more oil than al­lowed by the OPEC+ deal in eight months this year. It has com­plied with the agree­ment in only three months of this year May, June and July - when dis­rup­tion to the key Druzhba oil pipe­line pushed pro­duc­tion be­low its OPEC+ tar­get.

The pol­icy of ac­com­mo­dat­ing cheat­ing has been costly for the king­dom. Riyadh was forced to re­duce its own pro­duc­tion as much as 700,000 bar­rels a day be­low its own OPEC+ quota to pre­vent oil prices from fall­ing.

Prince Ab­du­laziz bin Sal­man

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