Opec: Low-key meeting puts disagreements aside

OREANDA-NEWS. June 03, 2016. Opec ministers left their meeting in Vienna today with no change in policy but — importantly for the future of the organisation — no acrimonious rows between members and no significant oil price.

The Saudi-led policy of non-intervention in the market remains in place. And, with the market moving back towards balance and prices on an upward trend, ministers who spoke after the meeting declared themselves satisfied, especially Saudi Arabia's key Gulf allies.

UAE oil minister Suhail Mohamed Faraj al-Mazrouei said: "The meeting was excellent. There is full alignment between the members. The market is encouraging and I think the strategy is working."

Opec president and Qatari oil minister Mohammed Saleh al-Sada said, "The worst is over."

Saudi Arabia's oil minister Khalid al-Falih and his Iranian counterpart Bijan Namdar Zanganeh said the atmosphere was conciliatory. "In the end it was an easy meeting, calm," Zanganeh said.

"The spirit of the meeting was very co-operative, collaborative, and all of the ministers see basically the same fundamentals," al-Falih said. There was no clash between Saudi Arabia and Iran.

Saudi Arabia's policy of unfettered production was kept in place, while members such as Venezuela and Algeria were placated with talk of market stewardship and because ministers did not rule out the possibility of an output freeze at the scheduled Opec meeting on 30 November.

Iran remains free to build its output back to pre-sanctions levels while still arguing for a return to Opec production quotas, although Zanganeh kicked this into the long grass by conceding that the November meeting will be too early to discuss it.

Venezuela — prime mover behind the failed Doha discussions aimed at a production freeze of Opec and some non-Opec producers — aired the notion of allocating production ranges for Opec members, but conceded that this is a new idea that requires study.

Cash-strapped Algeria and Iraq were the last remaining proponents of declaring a production freeze today. Algerian oil minister Salah Khebri said the eventual return of shut-in crude from Canada, Nigeria and Libya will pressure markets, and this rise in supply "means that we must reduce output, or at least freeze it, until the market regains balance, in the interests of both producers and consumers".

Iraqi deputy oil minister Fayadh al-Nema said: "We call for freezing output to increase prices in order to help increase the financing of projects and investments, so that a future gap between supply and demand will not arise." Yet he left the meeting placated, saying, "We are happy with the decision."

Reintroduction of an overall Opec crude output ceiling was aired but met with little enthusiasm. "Most were not on board" with that idea, Zanganeh said.

Iran's refusal to participate until it regained pre-sanctions production levels was the reason given for Saudi Arabia pulling the plug on an output freeze at the Doha meeting on 17 April. Yet emollience was the order the day with respect to past disagreements.

Al-Falih did not mention Iran's position in a long interview with Argus or in subsequent comments. And Qatar's al-Sada sounded like an echo of Zanganeh when he remarked: "We have seen the production of Iran increasing. Concurrently, we have seen that the price is recovering."

Al-Sada said: "There is a sense that the market fundamentals are working." Attention is now focused on the plunge in investment in crude production over the past two years. "A fair price," al-Sada said, is one that allows for a "reasonable return, so we can continue investing".

Putting disagreements to one side and focusing on market equilibrium rather than contentious output controls can be seen as a positive result by Opec members. They made another small yet telling achievement — concluding the long-running saga of finding a successor to long-time secretary-general Abdullah al-Badri.

The secretary-general does not make policy, yet the post has been fiercely contested. Iran, Iraq and Saudi Arabia put up candidates. Members today chose Nigeria's former Opec governor Mohammed Barkindo for a three year term. He served as acting secretary-general in 2006.