OPEC content with oil market

Vienna / AFP

Saudi Arabia expressed confidence on Thursday that oil prices will keep recovering, cementing expectations that a divided OPEC will decide to keep crude gushing at its meeting in Vienna.
“Everybody is very satisfied with the market. The market is rebalancing as we speak,” said Khaled Al Falih, newly appointed by the kingdom’s powerful and dynamic new crown prince.
“Demand is extremely healthy and robust. Non-OPEC supply is declining. Prices will respond to the rebalancing of the market,” Falih said.
Traditionally the Organization of the Petroleum Exporting Countries, which pumps around a third of the world’s oil, has cut production to boost falling prices.
But in the most recent drop, which has seen oil tumble from over $100 in 2014 to close to $25 in January, OPEC—driven by Riyadh—has changed tack, keeping oil flowing to maintain market share and squeeze competitors.
It has taken some time—straining even Saudi Arabia’s finances, to say nothing of on-the-brink OPEC member Venezuela—but the tactic now appears to be working at last.
Non-OPEC output is falling and prices last week briefly rose above $50 for the first time in six months, although they have softened slightly since. In morning trade in London on Thursday, both main contracts for oil—West Texas Intermediate and Brent Crude —were little changed, on $49.01 and $49.83 respectively.
Animosity between Saudi Arabia and Iran—bitter regional OPEC rivals engaged in proxy conflicts in Syria and Yemen—means that any agreement to cut output is highly unlikely in any case.
A group production target of 30 million barrels per day—in any case flouted, currently around 32 million bpd—was abandoned at OPEC’s last meeting in December.
Since Iran’s 2015 nuclear deal entered into force in January and sanctions were lifted, Tehran has aggressively ramped up output, and is unwilling to stop now.
“A doubling of exports of Iranian oil has had no negative impact on the market and has been absorbed well,” Iranian Oil Minister Bijan Zanganeh said on Wednesday.
On Thursday he said that setting a collective OPEC ceiling on output “means nothing” without agreeing production quotas for members.
Other members including Venezuela, Algeria and Iraq indicated openness Thursday to such individual limits.
“We propose a system of supply-production range, allocating a production range with minimum and maximum limits,” Venezuela’s Oil Minister Eulogio del Pino said. Falih said only that this was an option.

‘Don’t care about prices’
Saudi Arabia is undergoing change with the powerful young Deputy Crown Prince Mohammed bin Salman seeking to revamp the country’s economy to reduce dependence on oil. His “2030 Vision” includes a partial floatation of national oil giant Aramco and creating a gargantuan sovereign wealth fund. This week it pumped $3.5 billion into Uber.
The 30-year-old prince last month replaced veteran oil minister Ali Al Naimi with Falih, whose comments on Thursday made clear that the country is loathe to cut OPEC output.
“The market is doing quite well by itself. We will be very gentle in our approach and make sure we don’t shock the market,” Falih said.
This conflict between the Saudis and the Iranians could re-emerge if oil prices dip again, however, for example on the back of a stronger US dollar. This worries poorer OPEC members, not least Venezuela, racked by severe food shortages and inflation projected to hit 700 percent in 2016. This is unlikely to sway the Saudis, however.
“We don’t care about oil prices—$30 or $70, they are all the same to us,” Prince Salman said in an interview with Bloomberg published in April. One thing which could perhaps smooth the waters would be the appointment on Thursday of a new OPEC secretary general to replace Libyan Abdalla El Badri.
Candidates reportedly include Ali Rodriguez Araque of Venezuela, Nigeria’s Mohammed Barkindo and Mahendra Siregar of Indonesia.