OPEC Divided on Production Cut Before Algiers Talks
OPEC’s decision to hold informal talks in Algiers this week has fanned speculation that the group might be about to deviate from a two-year-old policy of pumping without limits, which succeeded in hurting rival suppliers but also sent prices into free fall.
A previous attempt to agree on an output freeze, including non-OPEC member Russia, collapsed in Doha in April when Saudi Arabia walked away because Iran refused to participate. This time around, many producers also have conflicting priorities, with Iran, Iraq and Nigeria determined to restore lost production, while Russia and Saudi Arabia maintain near-record supplies.
Following is the latest on the participants’ positions as they head into discussions on a possible production agreement.
Energy Minister Noureddine Boutarfa has shuttled between Tehran, Paris and Moscow as he prepares to host the talks this week. He has urged a 1 million barrel-a-day cut in world supply and said prices below $50 a barrel can’t continue. Algeria has been a bastion of stability in Northern Africa in the battle against Islamic State, but increased pressure on its budget due to lower energy prices could make it hard for the government to afford expensive subsidies that helped it curb dissent following the Arab Spring.
Rising crude prices earlier this year may have emboldened Angola when it decided in June to end talks with the IMF about a loan, according to Standard Chartered. Still, oil revenue, which provides about 95 percent of export income, is “barely enough” to pay debt owed by the government and the state oil company Sonangol, President Jose Eduardo dos Santos said in July.
Ecuador advocated a production cut at OPEC’s December meeting, with a target of 30 million barrels a day. At the time, OPEC was pumping almost 3 million barrels a day more than that.
The Persian Gulf nation is rebuilding its energy industry and seeking to regain market share after international sanctions imposed over its nuclear program were lifted in January. Since then, it’s added about 800,000 barrels of production. Oil Minister Bijan Namdar Zanganeh skipped the last round of freeze talks in Doha and said signing a deal would amount to self-imposed sanctions. This time, President Hassan Rouhani has said the country supports efforts to stablilize or improve prices, but it’s vital to make up lost output. The nation will be ready to consider a cap once it reaches pre-sanctions levels of “slightly” above 4 million barrels a day, possibly by the end of this year, Mohsen Ghamsari, director for international affairs at state-run National Iranian Oil Co, said this month.
Iraq could be the biggest stumbling block to any deal, according to Bloomberg Gadfly columnist Julian Lee. The country has increased production the most in percentage terms since the OPEC strategy to maximize output was adopted. New Oil Minister Jabbar Al-Luaibi has asked oil companies to boost output. Separately, Baghdad has told fellow OPEC members the level at which it would be willing to freeze production but hasn’t made that number public. Now is “the right time” for the group to reach a deal on output, and crude may fall if its members fail to take a decision in Algiers, Falah Al-Amri, Iraq’s governor to OPEC, said on Sept. 22.
It’s hard to see how Libya would accept a freeze as it strives to return production to the 1.6 million barrels a day it pumped before the ouster of dictator Moammar Al Qaddafi five years ago. Output has risen about 70 percent since August as fields resumed and some ports reopened for their first overseas loadings in two years, but production remains at about a quarter of pre-2011 levels as rival armed factions struggle for control of the nation’s energy resources.
Africa’s biggest producer under normal circumstances, Nigeria needs to sell every barrel it can amid low prices and output that’s been cut by militant attacks on its energy infrastructure. Oil Minister Emmanuel Kachikwu said Sept. 19 that production has accelerated over the past several weeks amid a cease-fire. He predicted that daily output should rise to 1.8 million barrels a day next month and 2 million barrels by December. That compares to 1.44 million barrels last month, matching a low set in May, data compiled by Bloomberg show.
Saudi Arabia and its allies
Energy Minister Khalid Al-Falih, after pledging cooperation with his Russian counterpart Alexander Novak on Sept. 5, denied there was any current need to cap production, saying “markets are trending in the right direction.” Yet Saudi foreign reserves have declined by almost a quarter in the past two years amid the oil-price slump. The country is weighing plans to cancel more than $20 billion worth of projects and slash budgets to repair finances, according to people familiar with the matter. It may also be more amenable to a freeze deal than it was at the Doha talks. The kingdom has offered to cut its output to January levels, Algeria’s Energy Minister Noureddine Boutarfa said Sunday. Qatar, Kuwait and the U.A.E. tend to follow Saudi Arabia’s lead when it comes to OPEC policy decisions.
Oil Minister Eulogio del Pino lobbied for a production cut at the OPEC meeting in December and was one of the main drivers behind the Doha summit. Economic mismanagement and the slump in prices have brought his oil-dependent country to the brink of collapse.
President Vladimir Putin has said a freeze deal with OPEC would be the “right decision.” Yet past pledges to cooperate with the bloc have generally come to nothing. Russia, which is pumping at record levels above 11 million barrels a day, boasts the lowest breakeven oil price among the 15 nations attending the meeting. But with crude stuck below $50 a barrel, it’s also battling its longest recession in two decades.
--With assistance from Dina Khrennikova and Samuel Dodge.