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Zainab Calcuttawala

Zainab Calcuttawala

Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

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Which Non-OPEC Producers Can Be Expected To Cut?

offshore rig

Last week, Venezuelan oil minister Eulogio del Pino released a list of states invited to participate in the Organization of Petroleum Exporting Countries’ (OPEC) ongoing negotiations regarding a much-anticipated output freeze.

Russia, Egypt and ten other oil exporters made the list, though the high variation between the economic and political standings of the non-OPEC participants add to the already complicated and delicate orchestration of the deal—if there is to be a deal, that is.

This past weekend, several of the invited non-OPEC countries sent representatives to Vienna for consultations regarding the terms of a potential freeze deal. No details have been finalized, but those who participated agreed to meet again before the 30 November OPEC summit.

Russian President Vladimir Putin and Energy Minister Alexander Novak have recently agreed to freeze output in coordination with OPEC, if the group’s members can flesh out a plan amongst themselves.

According to OPEC Secretary-General Mohammed Barkindo, the bloc is on track to deliver a deal by the end of November. Barkindo also said that Russia has agreed to participate in OPEC’s official meeting this month.

As outlined by the Jamestown Foundation last month, Kazakhstan is desperate for a freeze deal to help economic development rebound to the 6-7 percent expansion rate that the former Soviet Republic saw when barrel prices exceeded $100. But just because they are desperate for a cut doesn’t mean they will participate.

Kazakh Energy Minister Kanat Bozumbayev said on Tuesday that Kazakhstan itself would not be doing any cutting, because, according to Bozumbayev, their production levels are small in proportion to some of the others at the negotiating table, namely Russia, Saudi Arabia, Brazil, Iran, and Mexico.

This year, Kazakhstan does not expect its economy to grow more than 0.1 percent, while 2017 forecasts from the World Bank predict a low one-percent increase in GDP. Kazakhstan - which recently reopened its Kashagan field, depends on oil exports for over 60 percent of total government revenues and a quarter of its GDP.

A failed deal could mean renewed terrorist attacks and political instability for Kazakhstan as the Kazakh economy continues to spiral downwards.

Asked what he hoped Saturday’s meeting would achieve, a Kazakh official in attendance in Vienna desperately said: "We just hope the price will react and it will increase." That desperation is shared by many other oil-dependent countries, but this desperation is also a sign that these countries are not in any position to scale back the production that generates the most revenue. Related: Oil Tanks After API Reports Biggest Build To U.S. Crude Stocks Since March

Azerbaijan was also at the table. Halfway through October, Azerbaijan – a country that produced more than half of the world’s oil a century ago - also announced its support of an OPEC/non-OPEC cut, which, as ClipperData noted, is convenient because the country’s September oil production was 10.2 percent lower than its August rate.

"Venezuela and Azerbaijan agree that some measures will be taken to stabilize the market,” Azeri Energy Minister Natig Aliyev said this weekend. “We agreed the price of oil can be around $60 per barrel." Statements revolving around price, however, do not speak to who is ready to share the burden of cutting production, and do little to assuage market fears that a cut is but a wispy goal.

Oman wasn’t buying the feasibility of OPEC cuts either, and before the Algiers meeting in September, Oman said as much, stating that it did not believe in the bloc’s ability to solve the pricing crisis due to several failed efforts to freeze output over the past year.

Newer reports on Oman show that they officially support an output freeze and overall reduction, with the expectation that “similar measures be taken by other countries.” It remains unclear if Iraq, a war-torn nation currently defying production limits, and Iran, a country trying to regain its legs now that sanctions were lifted, count as one of the “other countries” that Oman expects to cut output.

As a net oil importer, Egypt does not have the market power or political capital to sway the momentum of a freeze one way or another. The North African country’s recent spat with Saudi Arabia – the de facto leader of OPEC - over suspended petroleum shipments will also limit the salience of Egyptian interests in the bloc’s proceedings.

Sources from the Egyptian Parliament say the country’s energy ministry will be asked to review Saudi Aramco’s five-year agreement to supply Egypt with petroleum derivatives in the coming weeks, further complicating relations between the two nations.

Ninety-nine percent of Canadian oil exports go straight to the United States, according to governmental data from the buyer and seller countries.

Neither of the two North American countries is part of OPEC, and they have their own agreements for energy supplies. So even though Canada has been invited to participate in the freeze talks, the country does not have the economic or political incentive to reduce output.

Brazil elected to “observe” Saturday’s meeting as the country prepares to increase production rates over the next few years. This makes them extremely unlikely participants in any efforts to scale back production. Related: This Entire Region Is Now Shaping Up As The World’s Top Natural Gas Play

Other countries present this weekend included Mexico, which has spent the better part of this summer building a hedge against low oil prices for the next fiscal year.

Small-scale producers such as Bolivia and Trinidad and Tobago have already turned down production over the past two years, which had a limited effect on market fundamentals.

Norway, a 1.6 million barrel per day producer that has increased output by 2.1 percent in 2014 and 3.08 percent in 2015, declined to meet with OPEC over the weekend.

The geopolitics of oil within OPEC has already delayed the implementation of an internal production reduction for almost an entire year. By adding new nations from previously uninvolved continents (North America and Europe), the bloc has flooded the negotiation table with new interests – creating a fresh slate of diplomatic obstacles to overcome before an output freeze can be implemented.

By Zainab Calcuttawala for Oilprice.com

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