An anonymous OPEC delegate has just laid out the four fundamental must-haves for sealing the OPEC deal—revealing that the path that lies ahead for the OPEC deal is even harder than many had thought.
This weekend’s OPEC meetings did not resolve long-standing disputes between its members over who was cutting, and who was cutting how much—as a result the technical committee, which is in the unfortunate position of working out the details of the much anticipated and ever-elusive deal, has moved up its meeting to November 21 from November 25, according to Reuters sources.
But another source, speaking only on the condition of anonymity, disclosed some terms that Saudi Arabia—the weightiest OPEC member—said are absolutely necessary if a deal is to be had.
First, according to the source, all OPEC members must agree to collective action. Second, each member must share the burden of the cuts equitably. Third, the cuts must be transparent and be credible as seen by the markets. In other words, members would have to use production figures reported by OPEC, not their own self-reported figures.
This maneuvering by Saudi Arabia—this digging in of its heels—although understandable on its part, since Saudi Arabia is oft the OPEC member stuck with all the heavy lifting. But this who’s going to blink first mentality could very well be the deal breaker that the markets have been fearing ever since the Algiers almost-deal-but-not-quite deal was struck in September.
While the source specified that this laundry list of demands would still allow for Libya and Nigeria to be exempt from any cuts or freezes, Saudi Arabia would expect Iraq to cut production—and to use OPEC production figures to determine how much—and for Iran to freeze production, again, using OPEC figures.
This is a pretty big ask, considering both countries have balked at the idea of using OPEC production figures versus their own.
For Iran, using OPEC-supplied production figures means that Saudi Arabia expects Iran to “freeze” production at 3.7 million barrels per day, versus Iran’s self-reported 4 million barrels per day. And even if Iran agreed to use the 3.7 million barrel per day figure, it is still adamant that its desire is to freeze only after it reaches 4 million per day, which is its pre-sanction production level.
For Iraq, Saudi Arabia is asking for a cut down from 4.6 million barrels per day, instead of Iraq’s figure of 4.8 million barrels per day. Meanwhile, Iraq is still insistent that it should be exempt from the deal because it is still fighting Islamic State.
Saudi Arabia, Iran, and Iraq are OPEC’s largest producers—and are often at odds even beyond oil matters—and without an agreement between them, there will be no deal.
By Julianne Geiger for Oilprice.com
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