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A power play by Saudi Arabia has resulted in the cancellation of a meeting intended to steer the world’s oil exporters towards a production freeze, causing oil prices to tank on Friday.
After the kingdom decided to take a rain check for a Monday meeting that would have brought together OPEC members and non-OPEC members, the remaining attendees called the event off completely.
At the time of this article’s writing, Brent barrel prices had fallen by 3.59 percent, erasing the gains of a week’s worth of OPEC-related speculation regarding the status of a cartel-wide freeze deal.
Asked for the logic behind the Saudi’s backing out of Monday’s international meeting, Saudi Arabia said it wants OPEC members to agree on a deal before sitting down with non-OPEC producers—for example, heavyweights such as Russia, which OPEC is keenly aware needs to be onboard for any meaningful contraction on the supply side of things.
It has become increasingly obvious that since September, economic and political interests amongst the cartel’s members have undermined any semblance of teamwork that the group could have claimed to have before the oil price crisis hit at the end of 2014.
Due to oil sectors wrecked by separatists and a civil war, Nigeria and Libya will receive exemptions to production limits or cuts. Iran and Iraq – neighboring countries that have also argued for exemptions from the deal in the past due to the lingering effects of international sanctions and terrorist activities, respectively – will also need to either freeze or cut output, depending on who you ask and when. The pushback between Iran and Saudi Arabia, and Iraq and OPEC at large, has been a constant stumbling block for OPEC since the production cap talks first began months ago.
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OPEC members Venezuela and Algeria both desperately need higher oil prices to save their oil-dependent national economies. The Gulf countries, on the other hand, have learned to—with difficulty—manage the capital they earned during the oil boom, putting them in a position to navigate years of bearish markets while mitigating financial pressures without catastrophe, although there are doubts as to just how long these countries can hold out in the current price environment.
The delicately tight rope act here multifaceted, with Iran and Saudi Arabia at odds way beyond oil production issues, OPEC not wanting oil prices to rebound too high lest US shale come in and steal the day, and nearly every member country, including Saudi Arabia, not wanting to give up any market share—a reality if all members do not share the production cuts equally, which is looking less and less likely by the hour.
So despite Monday’s cancelled meeting, OPEC, which controls 40 percent of the world’s oil exports, will conduct its official quarterly meeting in Vienna on Wednesday, during which the international energy community will look to the bloc’s members to agree on cuts that will bring their combined production down between 4 and 4.5 percent total.
The failed Monday meeting was supposed to include Russia despite their already unofficial agreement to freeze production at current near-record levels while shining on the energy community by calling the freeze a “cut” because the freeze figure is lower than its planned 2017 production level. The fact that the meeting failed highlights OPEC’s divided membership does not bode well for any kind of production cuts on November 30.
By Zainab Calcuttawala for Oilprice.com
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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…