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Houston Oil and Gas: Cuts and Rehires Indefinitely Frozen

Houston Oil and Gas: Cuts and Rehires Indefinitely Frozen

Despite indications that the massive…

Saudis Feel Pressure As Key OPEC Members Call For Changes

As OPEC’s meeting looms, yet another oil producing country is urging the group to shift its strategy away from a price war with competing producers and act to boost the price of crude.

The latest country to call for higher prices is Iraq, whose oil minister, Adel Abdel Mahdi, called for unspecified collective measures to boost oil prices in the coming year. But he stressed that OPEC should be careful to maintain a unified front in addressing the issue. “We should wait and see what decision will the OPEC members made on the Dec. 4 meeting in Vienna, Austria,” Mahdi said Saturday at the Gas Exporting Countries Forum being held in Tehran. “Though any of the members have their own view, the OPEC unity should be maintained.” Nevertheless, Mahdi complained that current prices are unsatisfactorily low.

Iraq’s call for a solution was far milder than that of non-OPEC member Oman. On Nov. 9, the Gulf state’s oil minister, Mohammed bin Hamad al-Rumhy, denounced OPEC’s current strategy of maintaining the cartel’s production at 30 million barrels per day.

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“This is [a] man-made crisis in our industry we have created,” al-Rhumy said. “And I think all we’re doing is irresponsible.” He said oil “is a commodity that if you have 1 million barrels a day extra in the market, you just destroy the market. We are hurting, we are feeling the pain, and we’re taking it like a God-driven crisis. Sorry, I don’t buy this, I think we’ve created it ourselves.”

The OPEC strategy, designed by Saudi Oil Minister Ali al-Naimi, is to wage a price war on OPEC’s biggest competitors, oil companies using the relatively expensive technology of hydraulic fracturing, or fracking, to extract generous amounts of oil, principally in North America. Although breakeven prices vary depending on the company, many North American shale producers need oil prices much higher than the current mid-$40s per barrel in order to turn a profit.

In the past, Saudi Arabia has been a “swing” oil producer, increasing or decreasing production as warranted to keep the price of crude at acceptable levels. But at OPEC’s meeting in Vienna in November 2014, al-Naimi persuaded the group to maintain production, despite an oil glut, arguing that most oil-producing countries could survive a period of low prices as they regain market share.

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Certainly Saudi Arabia is rich enough to weather such a storm, but not all oil-producing countries have that luxury. Before last year’s meeting, countries such as Libya and Venezuela, whose economies already were under pressure, were urging the group to shore up prices. Al-Naimi, though, convinced the cartel that “the market will stabilize itself eventually,” and won unanimous approval of the strategy.

Despite the growing calls for some sort of mechanism to raise prices, it doesn’t appear that OPEC will change its tack, according to Iran, a member of the cartel. The country’s oil minister, Bijan Zanganeh, said Saturday that at its meeting, the cartel probably will stick with its ceiling of 30 million barrels of crude per day.

Zanganeh repeated his expectation that within six months of sanctions on Iran being lifted, his country will be producing 1 million barrels a day. Amir Hossein Zamaninia, Iran’s deputy commerce minister, said that amount shouldn’t break through OPEC’s production ceiling.

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Zanganeh complained that OPEC itself is breaching its self-imposed limit, but said that won’t affect Iran’s production plans. “I asked them to reduce production and to respect the ceiling,” he said, “but it doesn’t mean we won’t produce more because it is our right to return to the market. … It is a sovereign right.”

By Andy Tully

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