By Syed Rashed Husain
Can OPEC strike a deal in Vienna on November 30? A billion dollar question, indeed!
Efforts are on. Behind the scene, energy diplomacy is working overtime - and in top gear. Major stakeholders are signaling a shift in the desired direction. Global energy leaders are beginning to appear positive, as a sense of optimism seems taking over.
Officials were endeavoring to nail down differences and narrow the sticking points, Reuters reported quoting OPEC sources. “It is difficult at some points but I don’t see any deadlock,” one of the source said. “What happened in Algeria gave a lot of hope and impetus and I think people are committed to that.”
What production level Iran is to be permitted under a possible OPEC output restraint arrangement remains a major ‘stumbling’ block. Some movements have reportedly been made on this issue too. Initially, Iran wanted an output cap of 4 million bpd, while other OPEC members wanted Iran to freeze supply at about 3.7 million bpd. The issue was reportedly hotly debated and contested at the Oct. 28 Vienna meeting of the OPEC High-Level Committee entrusted with the task to define individual supply limits of OPEC member countries under the Algeria agreement. The committee is now set to meet again on Monday for a second time - attempting to bring about an agreement on the issue. And in the meantime, signals coming out after the Doha informal discussions during the weekend remain positive on the issue.
Consequent to the developments over the last few days, the overall mood within the OPEC closed doors now appears much more positive. “Whatever it takes to reach a consensus will be taken by the ministers,” an OPEC source familiar with the discussions, referring to finding a compromise over Iran, told Reuters. “We cannot leave Vienna on November the 30th without an agreement.”
This is exuding confidence in the markets too.
To overcome, ‘the most severe oil market crisis in 50 years’ shuttle diplomacy is on. OPEC Secretary General Mohammed Barkindo is visiting a number of member states. As per some reports, in order to push the process, he met Minister Khalid Al-Falih, in London. And then before traveling to Ecuador and indeed Iran, he landed in Caracas last Wednesday and called on Venezuelan President Nicolas Maduro, the leading proponent of the output cut agreement.
And Maduro appeared exalted after the meeting with Secretary General. OPEC countries are ready to reach a “forceful” agreement on cutting oil output, he emphasized. “There is sufficient will among OPEC countries to take the step we need to take in the month of November, [to reach] a forceful agreement to reduce production and construct new mechanisms to stabilize the market,” Maduro said in a televised broadcast from the presidential palace.
In the meantime, availing the opportunity of the Gas Exporting Countries Forum (GECF) moot, global energy leaders were seen huddled in Doha, Qatar apparently striving to reach an agreement and streamline their joint course of action.
For non-OPEC Russia to be onboard, remains critical to the prospects of achieving the objective of stabilizing the markets. That seems possible - now. Russia, the world’s largest crude producer, is now emitting signals, it is ready to cooperate with OPEC. Russian Energy Minister Alexander Novak now is emphasizing Russia would “support any decision” adopted by OPEC.
Until now, Russia has been saying it preferred freezing its output while OPEC wanted Moscow to contribute to cuts. Discussions are on, but while talking to reporters on GECF sidelines, Novak appeared optimistic. “We expect the talks to be productive,” he said, adding he does not rule out contacts with representatives of Iran in Doha.
Apparently sensing the positive mood inside, Saudi Energy Minister Khalid Al-Falih is now beginning to target the OPEC output level of 32.5 million barrels per day (bpd) - the lower end of the previously agreed range. In Algeria, end-September, OPEC agreed to bring its output to between 32.5 - 33 million bpd.
“I’m still optimistic that the consensus reached in Algeria for capping production will translate, God willing, into caps on states’ levels and fair and balanced cuts among countries,” he told Al-Arabiya TV. Falih also underlined he believed the market was already on its way to becoming balanced and that an agreement by OPEC at its meeting in Vienna on Nov. 30 would speed the recovery.
Markets appear more balanced in reaction. “Clearly the market is now seeing increased chances of an OPEC production cut,” Commerzbank analysts said in a note. “There is doubtless considerable pressure to take action, as the oversupply will not reduce itself.”
Stakes but continue to be high. Falih has also underlined that it is imperative, for the OPEC to reach a consensus on a deal to curb production. November 30 ministerial is Vienna is a critical one – OPEC is conceding too. “Whatever the outcome, the Vienna meeting will have a major impact on the eventual - and oft-postponed - rebalancing of the oil market,” the IEA too agreed in its Oil Report.
Major obstacles are still to be surmounted. Overall crude production is touching new heights. In the week to November 11, EIA too reported a larger-than-expected crude buildup of 5.3 million barrels.
Jason Gammel of investment bank Jefferies said “the physical market has shifted back to oversupply because of surging OPEC output, with the most material increases driven by improving security conditions in Libya and (tenuously) Nigeria.”
And there are reasons for this sense of concern. OPEC pumped 33.64 million bpd last month, up 240,000 bpd from September, OPEC reported in its monthly report.
In its monthly oil market report, the Paris-based IEA too said the overall global supply rose by 800,000 bpd in October to 97.8 million bpd, led by record OPEC output and rising production from non-OPEC members such as Russia, Brazil, Canada and Kazakhstan.
Without an output cut from OPEC, escalating production from exporters around the globe could lead to relentless supply growth, and the oil market surplus may run into a third year in 2017, the International Energy Agency is now emphasizing.
“If no agreement is reached and some individual members continue to expand their production then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher. Indeed, if the supply surplus persists in 2017 there must be some risk of prices falling back,” the IEA reported.
Stakes are high. A lot hinges on Vienna!
