Deal or no deal: Is Vienna meet last chance for OPEC oil deal?
Cohesive action by OPEC in collaboration with non-OPEC producers will be key to a more secure energy outlook for global economy
Global energy industry stakeholders, which includes some of the world’s leading countries as well as major oil companies will be keenly watching the OPEC deliberations in Vienna on November 30 as the producing countries seek to find a consensus on output and try to boost prices.
The contentious issue before OPEC and non- OPEC strategists when they face on Wednesday will be on how to share the burden of cuts agreed upon at the meeting in Algiers on September 28 during the International Energy Forum.
The Algiers meet in a surprise move had agreed to cut back output from the current 33.7 million bpd to the 32.5 to 33 million bpd band.
Oil prices rallied last week with traders anticipating “a planned, coordinated production …in order to prop up prices,” according to a Reuters report. However, nervousness set in later, as analysts turned wary of the prospects for such a deal.
While Brent traded at just under $45 a barrel a year ago, by January this year the price fell steeply to below $27 a barrel in January.
Brent crude futures were up 60 cents at $47.46 a barrel on November 21, having touched their highest level since November 2. On November 25, the prices dipped to $47.08 a barrel with the market adopting a wait-and-see stance ahead of the Vienna meeting.
Uncertainty centered around doubts whether major OPEC-producers Iraq and Iran were willing to cooperate positively towards a resolution. Both the countries have sought an exemption as they need the revenue citing the challenges of rebuilding a battered economy following the challenges of combating ISIS in Iraq, and the international sanctions against Iran respectively.
Iran’s current output is 3.92 million barrels per day (bpd), about 800,000 bpd short of its pre-sanctions goal of 4 million bpd.
“A preliminary meeting ahead of next week's OPEC gathering failed to resolve the issues around Iran and Iraq’s involvement in the production cut agreement,” ANZ bank Singapore said in a note. “Despite this hiccup, we still expect the group to reach an agreement next week.”
According to Forbes, Saudi Arabia wants an OPEC deal in place before conversations with other producers such as Russia. The report said both Iraq and Iran have inched closer recently to agree to an oil production cut.
John Defterios, Emerging Markets Editor at CNNMoney, notes that the target of the whole exercise is to stabilize the price between $55-$60 a barrel.
While there is steady demand growth, the fact is that more crude will hit the market in the days to come with countries such as Libya, Nigeria and Venezuela adding to the supply.
OPEC’s Secretary General Mohammad Barkindo is at the forefront trying to hammer out a deal be setting aside differences to bring stability to the market.
Barkindo, met with Iran’s Minister of Petroleum, Bijan Namdar Zanganeh, at a closed-door session on November 19 in Tehran.
According to sources in the Ministry, the two oil chiefs discussed recent oil market developments, and economic and geopolitical uncertainties facing the market. Zanganeh pledged support for the implementation of the Algiers Accord 6.
Barkindo acknowledged the flexibility and accommodation already shown by Iran in reaching the Ministerial decision of 28 September. He also added that he looked forward to Minister Zanganeh’s continuing leadership – not only by contributing to the consensus needed for implementation of the Algiers Accord but also by actively working with his counterparts from other OPEC member-countries in that regard.
“The participation of Iran in the implementation of the accord is crucial and I remain optimistic,” said Barkindo following the meeting.
Non- OPEC producer Russia has also expressed willingness to join the output curb in order to help speed up the rebalancing of the oil market.
“We believe it is vital that both OPEC and non- OPEC come together and take coordinated and timely action to rebalance this market for the common good for all,” Barkindo had said at the Adipec conference held in the first week this month in Abu Dhabi.
With the crucial Vienna ministerial meeting just days away, the refusal of just one major producer to play ball could scuttle the whole deal.
“Cohesive action by OPEC in collaboration with non-OPEC producers in the spirit of equity, fairness and transparency,” in the words of Barkindo, will be the key to a more secure energy outlook for the global economy.