As Dan Dicker is away this week, please find below a guest piece provided by our new Managing Editor Chris Dalby.
In the final hours, as delegates were locked in backrooms, the chatter coming out of Vienna hotels concerning a potential production cut from OPEC warned of the worst. Despite attempts by Angola and UAE to reassure the markets, Saudi Arabia stuck to its guns regarding a possible cut to production. Attempts by Algeria and Venezuela to secure a 2 million barrel a day cut were steamrolled while negotiations with Russia and Mexico to share the pain of production cuts failed. Moscow has sought to explain away its refusal in various ways, pointing to Siberian wells that are difficult to turn off during the winter, or explaining that the low ruble has not made a large dent in the ruble value of oil exports. However, the simple truth is that Russia cannot afford to produce less and needs to sell at $100 a barrel. But ultimately, so stubborn was Saudi Arabia in barring a cut, Russia’s decision may not have been a major factor.
OPEC has mismanaged this from the start. Even if it had decided to cut its current quotas by up to 2 million barrels a day, the mixed signals from OPEC’s famously disparate membership would have wreaked panic on the markets.
There is a good reason that Venezuela was playing the ‘good cop’ at OPEC, with its Foreign Minister Rafael Ramirez desperately trying to cobble together an agreement. The government revenues…