Algeria’s new energy minister, Noureddine Bouterfa, confidently said on Monday that if next week’s talks at the International Energy Forum in his native Algeria go well, then a follow up OPEC meeting could be scheduled before November 4 to head toward a freeze.
He also believes a freeze could balance the oil market for at least 6 months. On Tuesday, Bouterfa went even further and suggested that the informal OPEC meeting planned for September 28 may turn into a formal meeting at which he will suggest that OPEC producers cut crude oil supplies by one million barrels a day.
Venezuelan President Nicolas Maduro echoed Bouterfa’s sentiment when he addressed the media following the Non-Aligned Movement summit on Sunday. He said that an OPEC—Non-OPEC deal to stabilize the oil market is “close.”
However, investors should remember that these exciting claims do not mean much coming from Algeria and Venezuela. Neither of these countries has any meaningful muscle within the OPEC organization. Venezuela cannot even feed the workers who pump its dwindling production and Algeria holds only 1% of OPEC’s total oil reserves. This is posturing and bravado and especially immaterial in light of recent comments from Iran, Libya and OPEC’s Secretary General.
Iran has been steadily increasing production since sanctions ended several months ago and claims it should be exempt from any production freeze. Do not be confused by President Rouhani’s recent remarks in which he said that Iran “welcomes any move aimed at market stability and improvement of oil prices based on justice, fairness and fair quota of all the oil producers.” In Iran’s view of the situation, stabilizing the oil market does not include an Iranian production freeze or cut. Iran believes it deserves to produce while others cut so that it can regain its former place in OPEC’s production totem pole. Yet other countries, like Saudi Arabia, are not about to agree to any freeze without equal sacrifice from Iran.
Libya has also categorically refused to participate in an oil production freeze and seeks an exemption from a production freeze due to months of disruptions in its oil production and exports. Libya may not be the antagonist that Iran is, but OPEC does not seem eager to give it an exemption, either, while the rest of them sacrifice.
Mohammad Barkindo, the new OPEC Secretary General from Nigeria, has made clear that the sideline meeting in Algeria is “for consultations not decision-making.” Even if OPEC ministers do reach some type of compromise, Barkindo reminded everyone that he would still need to convene an additional “extraordinary” OPEC meeting to negotiate the deal. Barkindo is warning the market not take this oil freeze talk too seriously. Other OPEC “sources” confirm Barkindo’s account and say that any real action will be pushed to OPEC’s regular November 30 meeting.
For investors, actions should speak louder than words. OPEC members Saudi Arabia, Iraq, Kuwait, and the UAE are all producing at or very close to record levels. Russia, the key non-OPEC producer, is also producing and exporting at record levels. Russia and Saudi Arabia have been fighting for oil sales to China for over a year. Recently, Russian exports nominally outpaced Saudi exports, and neither side appear willing to concede in China. Iraq has also been trying to increase its oil production. The government only recently restarted oil exports from Kirkuk after cutting a preliminary deal on revenue sharing with the Kurdistan Regional Government. None of these OPEC powers has shown signs of slowing production.
Bureaucrats from struggling oil economies continue to speak positively about a potential freeze deal, even if just for the rumor-driven short-term spike in prices. However, these are the least powerful OPEC countries. For medium and long-term prognostication, look to the actions of the OPEC powers. Those actions indicate strongly against a freeze.
Update: Saudi Arabia and Iran met at OPEC headquarters in Vienna on Wednesday. OPEC sources say the two parties met to prepare for the informal talks OPEC has planned for next week’s Algeria energy meeting but no other information was leaked. As it stands now, Saudi Arabia will only agree to an oil production freeze if all OPEC countries and Russia concur. Iran continues to seek an exemption to raise their oil production to at least four million barrels per day. Iranian production is reportedly very close to this number but its national oil company has indicated a desire to ”increase crude production based on market requirement.” Saudi and Iranian talks indicate some small progress towards an oil freeze but the gulf is still wide.
Ellen R. Wald, Ph.D. is a historian and scholar of the energy industry. She writes and consults on the intersection of geopolitics and energy.
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