At the most recent Opec meeting, in Vienna last November, it looked for a moment as if there might be some detente with some of the bigger members of that loose organisation known as non-Opec.
At the most recent Opec meeting, in Vienna last November, it looked for a moment as if there might be some detente with some of the bigger members of that loose organisation known as non-Opec.
Russian oil minister Alexander Novak, in the company of Rosneft boss Igor Sechin, had a meeting brokered by Venezuela with Saudi Arabia’s oil minister Ali Naimi, as did a representation from Mexico. There was a brief buzz about the possibility of co-ordinated output cuts to stem a fall in the price of crude. At that moment, crude had fallen by 30pc in five months.
But it was not to be. No agreement was reached, Opec decided to defend its market share rather than try to prop up the price with a production cut, and the price of crude fell by a further $25/bl.
With less than eight weeks to go before the next Opec meeting, the prospect of co-operation now looks more distant than at any time since Sechin, Novak and Naimi, and Venezuelan foreign minister Rafael Ramirez sat down together last year. Positions are becoming entrenched and far from being able to work together, there is now a movement toward apportioning blame. The odd thing about this is that all parties are able to use the same arguments, and accusations of unilateralism are being thrown from both sides of the impasse.
Sechin in February said a group of Middle East countries within Opec is pushing its own agenda and has destabilised the market. Oman, the Mideast Gulf holdout against Opec membership, yesterday criticised its neighbours, saying the producer group is refusing to reach out. For its part, Opec launched the latest in a series of strident defences of its policy, criticising “a stubborn willingness of some non-Opec producers to adopt a go-it-alone attitude, with scant regard for the consequences”.
Producing countries are feeling the low-price squeeze. While calls for output cuts are loud, frequent and in Iran’s case precise with the numbers, commitments to cut production are non-existent.
And all the while, the oil keeps pumping. Russian output hit a record in January and Saudi Arabia’s did likewise in March. This summer may see Saudi production at 11mn b/d, consultancy Energy Aspects says, as the country’s two new large refineries increase runs to capacity. Defending market share, for Opec as a whole, appears to be reason enough to bump crude output up to its highest in over two years. Oman may complain, but it plans a 3.5pc increase in production this year.
This is attrition warfare. Only the strongest will survive, as Saudi Arabia always said would happen. And finally, a sign that Opec policy may be having its desired effect: the EIA says production at the Bakken and Eagle Ford tight oil basins will fall between April and May, the first indication that lower prices may be forcing a turning point in the relentless, four-year US output growth story.
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