Saudis Said to Seek Restoration of OPEC Unity After Dohaby , , and
Kingdom wants to show that OPEC isn’t dead, people say
No indication it is seeking to change current production
Saudi Arabia will use this week’s OPEC meeting to repair relationships with fellow producers after the failure of an April accord in Doha to freeze crude output, according to people familiar the matter.
Khalid Al-Falih, who took over as Saudi oil minister last month, will reassure others his nation won’t flood the market and may be open to the reintroduction of an overall OPEC production target, which was scrapped in December, the people said, asking not to be identified because the information isn’t public.
While Riyadh has changed its tone, there’s no indication yet that Saudi Arabia is seeking to alter current production volumes, the people said. The diplomatic overture was described as a gesture rather than an actual shift in policy.
“It seems reasonable that the new Saudi Energy Minister Khalid Al-Falih may wish to start with a cleaner slate and improve the tonal dynamics inside OPEC,” said Bob McNally, head of consultant The Rapidan Group in Washington. “The bigger question is whether Iran would go along,” said the former senior White House oil official.
The conciliatory message is an attempt to end a dark period for OPEC in which pundits declared the organization effectively dead. The diplomatic maneuvering coincides with a recovery in the oil market, with Brent crude hovering near a six-month high of $50 a barrel and ministers from the Organization of Petroleum Exporting Countries gathering in Vienna amid hopes that the worst of the downturn is over.
“From the beginning of the year until now, the market has been correcting itself upward,” U.A.E. Oil Minister Suhail Al Mazrouei told reporters in the Austrian capital on Tuesday. “The market will fix itself to a price that is fair to the consumers and to the producers.”
Organizations from Goldman Sachs Group Inc. to the International Energy Agency say the crude glut is finally dwindling as the Saudi approach of squeezing high-cost suppliers -- opposed by most OPEC members when it was unveiled in late 2014 -- finally pays off.
“I think the market trends are better now” and the urgency that spurred producers to mull an agreement to freeze production in April in Doha has dissipated, Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, told reporters in Vienna. Kuwaiti officials and the Angolan oil minister echoed the message.
The meeting in Vienna on Thursday is the first since the acrimonious Doha gathering. Those talks in the Qatari capital failed after Saudi Arabia refused to freeze production unless Iran joined the initiative.
In a sign that the Saudi overture is having an impact, Eulogio del Pino, Venezuela’s oil minister and a main proponent of the doomed Doha agreement, said on Wednesday he had "an excellent meeting" with his Saudi counterpart.
The failure in Doha came after OPEC’s meeting in December also ended in disarray as the group abandoned its 30 million barrel-a-day production target. OPEC pumped 33.2 million barrels a day in April including production from Indonesia, which rejoined the group at the December meeting, according to data compiled by Bloomberg.
After 2 1/2 years of oversupply, oil traders also see signs supply and demand are getting close to being in balance. Disruptions in Canada and Nigeria took 50 million barrels out of the market last month, Geneva-based trading house Mercuria Energy Group Ltd. estimated.
“The rebalancing is happening a bit faster than anticipated because of the disruptions,” Mercuria Chief Executive Officer Marco Dunand said in an interview. “Demand is also stronger than expected” in countries from India to the U.S., he said.
The IEA forecasts oil demand will increase this year by 1.2 million barrels a day, while Dunand said growth is likely to top 1.5 million, perhaps rising as high as 1.8 million.
Brent and West Texas Intermediate crudes, respectively the international and U.S. oil benchmarks, rose last week above $50 a barrel for the first time in six months. Wall Street banks have lifted their oil-price forecasts, with Goldman Sachs now saying oil could hover between $50 and $60 a barrel in the second half of the year.
If OPEC’s success is measured by exports into the U.S., the group can claim a small victory. U.S. crude imports from the group in March climbed to the highest in almost two years, according to the Energy Information Administration. Saudi Arabia shipped 1.3 million barrels a day into the U.S. in March, the most since April 2014 and up almost 60 percent from a low point in January 2015.