OK, 2016 – this is it. This is your last chance to get something right. OPEC meet on November 30th to do a deal that would see the biggest oil producers across the world agree to limit output for the first time since 2008. Do NOT let us down.
The omens – well, at first glance, they look good folks. The last meeting ended on a somewhat ambiguous 'let's nail those details down later' note, but credit where credit's due - the lengthy discussions, endless phone-calls and flurry of negotiations have taken place, and made ground. Algerian Energy Minister Noureddine Boutarfa told reporters, “The goal was to prepare for Vienna. We won't turn back on the decision made in September in Algeria. All the countries, 11 present in today's meeting, agreed to support the Algiers Accord.” OPEC Secretary-General Mohammed Barkindo said “all hands are on deck” to ensure the deal is made.
Obviously, the stumbling block was Iran. After the Obama administration agreed to the nuclear deal, Iranian oil Minister Bijan Zanganeh was determined to see his country's production rise to pre-sanctions levels, and it's been widely reported that any talk of a freeze would have to be around the 4 million bpd mark.
Since the end of last week, insiders have reported that the majority of members will accept giving Iran greater flexibility than any other member state and ask for a freeze at 3.92m bpd. This is more than Tehran is currently producing – about 3.6 – 3.7m bpd.
On Saturday Zanganeh said “it is highly likely” that OPEC will reach agreement.
Of course, there is a good reason why Iran might be willing to support an OPEC-wide production freeze – that threat from President-Elect Trump that his “number one priority is to dismantle the disastrous deal with Iran.” Any move on this front to reimpose sanctions could cost Iran around 1 million bpd and would naturally impact on its bid to regain market share. If all OPEC members take a cut, the hit on Iran would be lessened. Perhaps they believe a burden shared is a burden halved.
The Russian Energy Minister Alexander Novak said he believed OPEC was looking more likely to come to a deal and if it was done, Russia would be prepared to cap output for six months – maybe longer. And he also said other non-OPEC producers could follow suit.
Iraq is also putting out upbeat signals – which is at odds with how it was behaving earlier this month. It had sought exemption from any cuts, but on Saturday a comment from Oil Minister Jabbar al-Luaibisaid that he was “really optimistic on the result of the next OPEC meeting” led to the Wall Street Journal suggesting it too is finally coming round to the idea. Forbes is less convinced, arguing that it has “decidedly good reasons to not participate in a cut” - rising costs from fighting ISIS and cuts it suffered under sanctions when Hussein was in place. It also contacted foreign oil companies last month, urging production increases; but I'd do that too if I knew I was going to have to make a cut in the near future.
Over the next few days, until November 30th, OPEC and non-OPEC will come together and hammer out the final details. The negotiating and back-room dealing will continue. Much is at stake, and so many other anticipated meetings have failed to deliver.
Saudi Arabia wrote this play, and in the final stages, when so many have suffered as a result, they will get their pound of flesh as the Kingdom cuts significant volumes. It did not want to be the one who did all the heavy lifting but as David Fyfe, market chief at Gunvor put it, “OPEC talked themselves into a corner and they have to come away with something.” He warns “prices could easily fall below $40 again if this ends without a deal.”
It's apt that we give the final words to Billy Joel:
“Don't you realise that only fools are satisfied?
Dream on, but don't imagine they'll all come true.
When will you realise, Vienna waits for you”
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