The much anticipated OPEC meeting in Vienna on June 2 ended pretty much as expected: the group once again failed to put any production targets in place.
Without a ceiling on output, all OPEC members will continue to produce as they see fit, leaving the oil market to sort itself out. The result was largely anticipated, given the lack of agreement at several prior meetings.
However, the meeting in Vienna was not without some news. OPEC members managed to agree on several small bore issues, which could be viewed as a modest success, especially after the apparent hostility on display in Doha in April and the utter failure in December of last year.
For example, OPEC appointed a new secretary-general, Nigeria’s Mohammed Barkindo, the former head of the Nigerian National Petroleum Corporation. He will take over from Libya’s Abdalla El-Badri, who has been in the job for several years on an interim basis because the group could not agree on a new leader. Related: Traders Watch Oil Chokepoints As Geopolitical Risk Soars
Also, OPEC agreed to approve of the reentry of Gabon as a member of the organization. Gabon was once a member of OPEC several decades ago, and now rejoins, bringing its 240,000 of production.
While the meeting in Vienna did not end with any blockbuster news, the members seemed to make some progress on restoring trust and building on some negotiations that could eventually lead to a reinstatement of production targets. Saudi Arabia reportedly was open to a collective production ceiling, but Iran insisted that it would only support individual country quotas, a policy that is too complicated to implement at the last minute in Vienna.
OPEC previously had a collective ceiling at 30 million barrels per day, a limit that didn’t stop the group from producing in excess of that level. In December 2015, the group failed to even agree on a target, disposing of any pretense of coordinated action. This time around, Saudi Arabia was rumored to be pushing a collective limit of 32 to 32.5 million barrels per day, an increase from the previous ceiling that would reflect both a larger organization and an increase in its market share. Still, the group could not agree on that collective target. Individual country limits would be much more significant, and while nothing was agreed upon this week, the preliminary discussions behind closed doors could lead to further negotiations in the coming months, which could make the next meeting on November 30 much more interesting.
Another notable development was the presence of Saudi Arabia’s new energy minister Khalid Al-Falih, who in his first appearance went to lengths to emphasize his country’s desire for market stability. “The market is doing quite well by itself and we will be very gentle in our approach so we do not shock the market. Our concern is for the long-term stability of the market,” he said. “We don’t want oil shocks in any way.” Related: Is OPEC About To Surprise The Oil markets?
While nothing concrete was agreed to, Saudi Arabia’s shift in tone was notable. The Saudis appear interested in reviving OPEC’s relevance. On the other hand, why would OPEC agree to limits now just as the oil markets move closer to balancing? And in November, there could be even less of a justification for production limits as non-OPEC supplies continue to fall. “Supply and demand are working and this is the essence of this policy,” United Arab Emirates’ energy minister Suhail bin Mohammed al-Mazrouei said on May 31. “From the beginning of the year until now, the market has been correcting itself upward. This is the year of correction.”
While not every OPEC member is on board with that sentiment, the Gulf States at least are content with unfettered production levels. Judging by the reaction of the oil markets, however, traders are disappointed with the inability of the group to make more tangible progress on coordinated action. WTI fell by 1.71 percent to $48.17 per barrel during early trading on June 2, and Brent was down 1.2 percent.
By Nick Cunningham of Oilprice.com
- U.S. Banks Down 2% On Bad Energy Loans
- Iranian Oil Is Disguising A Significant Decline In Global Production
- Will OPEC Use This Strategy To Defeat U.S. Shale?