While it eagerly awaits the outcome of the ongoing deliberations between the P5+1 and Iran on Tehran’s purported nuclear program, eyes are also focused on the upcoming OPEC ministerial this week. The OPEC moot in Vienna this Thursday, is being dubbed by many as one of the most important and crucial in its recent history.
All this is taking place in the midst of what is being described by some as the ‘Great Oil Crash.’ And the trend is not expected to go off - any time soon. “It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the IEA stated in its November oil market report, observing that the world’s oil supply is outstripping projected oil demand.
We are very much in the midst of a glut, with little possibility of any rally in near term. Oil producers are scurrying to hold on to their market share in China and elsewhere in the emerging markets. In the meantime, the Alaskan North Slope crude oil is now being exported to South Korea on a regular basis.
Adding to the glut has been the return of Libya’s oil production, despite a raging civil war with two competing governments asserting governance over the country. And despite the ongoing war against IS, exports from Baghdad continue to rise to a record post- Iraq war levels.
The Kurds are in the meantime, also flexing their crude muscles with a deal with Baghdad allowing them to increase their oil exports from Northern Iraq in the coming months. And to top it all, North Sea production is also set to rise over 11 percent in December. Overflow is imminent.
Prices are to go down - unless - taps are tightened! As the OPEC ministers are preparing to sit down in Vienna next Thursday, fireworks seem imminent. Oil market watchers appear divided. All sort of projections - from a large OPEC production cut to a small cut to none at all - are being made.
Eyes but, remain focused on Riyadh. What would be the stance of Saudi Arabia on a possible cut in output? Is Riyadh in a battle for market share or is it a part of a well-thought-of policy to let the prices melt, not only to hamper the growing shale business in the United States but also to make life for Moscow and Tehran more miserable? “Is it just my imagination or is there a global oil war underway pitting the United States and Saudi Arabia on one side against Russia and Iran on the other?” New York Times columnist Thomas Friedman, wrote last month.
Already in Russia, the idea of a Saudi-US plot against Moscow is a common currency as its economy struggles under the effects of low oil prices and Western sanctions imposed over its annexation of Crimea and support for rebels in eastern Ukraine.
Riyadh has been composed to all this speculation. However, with the OPEC ministerial just round the corner, it is making it clear - Saudi Arabia is for stable markets.
“Saudi oil policy... have been subject of a great deal of wild and inaccurate conjectures in recent weeks. We do not seek to politicize oil ... For us it’s a question of supply and demand, it’s purely business,” Minister Ali Al-Naimi was quoted as saying a couple of weeks back.
However, one thing is being made apparent: Riyadh was not willing to solely shoulder the burden of stabilizing the markets. In his meeting with Venezuelan Foreign Minister Rafael Ramirez earlier this month, Minister Naimi reportedly said: Saudi Arabia won’t cut output on its own. Mr. Naimi is expected to repeat the message to delegates at the Vienna ministerial, the WSJ said.
It has made known to its fellow OPEC member that all the members need to bear joint responsibility for the global oil market and that they should not expect Saudi Arabia to be the only country within OPEC to cut its supplies, former oil ministry official Mohamed Al-Sabban was recently quoted as saying. Unless agreement is reached on this fundamental issue, Saudi Arabia will continue defending its market share, he insisted.
Concern is but spreading. Energy diplomatic flurry could be witnessed all around - preceding the crucial Vienna meeting. Kuwait’s cabinet and the country’s Supreme Petroleum Council held an “extraordinary” joint meeting last week to consider measures to stop the slide in prices. According to KUNA, the meeting “discussed steps that have to be taken on all levels…including having consultations with fellow OPEC member states for maintaining interests of all parties”.
This was despite the earlier Kuwait statement expressing confidence on market situation. Only last week Kuwait’s oil minister had stressed that he did not believe there would be a reduction in output by OPEC when its 12 members gather in Vienna. Iran too has been badly hit by the falling oil prices.
In a statement last week, Iran’s oil minister criticized (some) countries of “trying to justify keeping oil production at the current level – which were set before countries such as Iran were allowed to return to selling oil in the global marketplace,” he emphasized. Iran is already tapping its sovereign wealth fund to mitigate the impact of the oil price slump.
In the backdrop, Iranian Petroleum Minister Bijan Namdar Zanganeh has been undertaking visits to Gulf Arab states Qatar, Kuwait and the United Arab Emirates. Zanganeh also held talks in Tehran with Rafael Ramirez of Venezuela. In a press talk, Zanganeh also indicated that he would talk with Saudi Arabia about market share when OPEC meets next week in Vienna.
Venezuela, Ecuador and Libya have all been contributing to the debate by saying that a cut was appropriate. Rafael Ramirez, who was Venezuela’s energy minister until two months ago, has also been visiting Algeria, Iran, Qatar and Russia in recent weeks.
As market players sit down to evaluate their priorities, Russia has said it’s willing to cooperate with Saudi Arabia on the oil market, while avoiding a commitment to limit output to reverse plunging prices.
In a joint statement issued after a meeting between the Russian Foreign Minister Sergei Lavrov and his Saudi couterpart Prince Saud Al-Faisal in Moscow on Friday, the two agreed to coordinate on “issues” affecting the energy and oil markets.
Saudi Arabia and Russia, which together produce 25 percent of global oil, agreed the market “must be free of attempts to influence it for political and geopolitical reasons,” Lavrov added. Where supply and demand are “artificially distorted,” oil exporters “have a right to take measures to correct these non-objective factors.”
And to follow up, Rosneft Chief Executive Igor Sechin was reportedly flying in to Vienna on Nov. 25 for an energy market conference, just two days before the OPEC meeting. The surprise announcement raised speculation that Sechin, a close ally of Russian President Vladimir Putin and a former deputy prime minister, would use the meeting as a cover to meet OPEC ministers, exploring common ground. Much is definitely at stake!