Syed Rashid Husain
CRUDE markets are volatile, reacting almost instantly to statements and moves of major stakeholders on the global energy chessboard. Hopes of a coordinated production cut continued to be raised and then dashed throughout the week, making the markets jittery, rather ultra reactive.
So volatile have been the markets, that on Thursday, oil prices briefly dipped to new 12-year lows, yet rebounded in the afternoon after it was reported that OPEC members might be ready to cooperate on an output cut, citing comments of UAE Energy Minister Suhail bin Mohammed Al-Mazrouei on Sky News Arabia. Mazrouei underlined low prices were already forcing non-OPEC members to cap production, but that cuts would require total cooperation from everyone.
A statement from Rosneft chief also helped firm up the market sentiments. The head of Russian state-run oil company on Wednesday floated the idea of a coordinated output cut by major oil-producing countries to prop up sagging prices but fell short of saying whether Moscow would contribute to such a plan.
Rosneft Chief Executive Igor Sechin, a close ally of Russian President Putin, suggested during the IP Week conference in London last week that major oil producers cut production by 1 million barrels per day (bpd) to reduce oversupply, which he estimated at 1.5 million bpd. “A coordinated supply cut by major exporters by around 1 million barrels per day would sharply reduce uncertainty and would move the market towards reasonable pricing levels,” he said.
Until recent past, Sechin has often been very critical of OPEC. He has also been underlining that Moscow would never cooperate with OPEC, as Russia’s oil industry could withstand any price rout, thanks to cheap labor and a weak local currency.
His tone seems to have changed a bit. Interestingly, while answering questions after the speech, Sechin declined to say whether Russia would participate in any coordinated output cut or not? “Who are we supposed to be talking to about cuts? Will Saudi Arabia or Iran cut production?” Sechin counter asked.
And thus the buzz continues to make rounds. Are major stakeholders being pushed, slowly and gradually, to agree to some coordinated output cut mechanism? A difficult question to answer indeed. And despite the fact that there are significant obstacles on way, including geopolitics, yet some initial positive signals are beginning to appear on the crude horizon. Riyadh has already indicated it would be willing to consider a cut, but only if all major producers agreed to one. And in contrast, Iran has been insisting all along, it intended to boost output this year.
However, some recent signals emanating from Tehran appear different from its earlier stand. Last Tuesday, before the statement of Igor Sechin, Iran’s Oil Minister Bijan Zangeneh hinted that Tehran was ready to negotiate with Saudi Arabia and other OPEC members over the dire conditions in international oil markets. “We support any form of dialogue and cooperation with OPEC member states, including Saudi Arabia,” Zangeneh told reporters.
Earlier in January, the Iranian oil minister had said that certain countries’ insistence on overproduction was politically motivated. “If there were a strong political will, the price of oil would have been balanced within one single week,” Islamic Republic News Agency (IRNA) quoted him as saying. “None of the oil producers is happy with the existing prices, which will harm suppliers in the long term.”
However, clarity is still missing on Tehran’s stance on the issue. A day later, another senior Iranian official said the country cannot cut crude oil production because it needs to regain market share and return to pre-sanctions output levels.
Asked if Tehran was ready to coordinate a production cut to support the oil market, acting deputy oil minister Masoud Hashemian Esfahani told Reuters news agency: “We do not like to cut. We need to [get] back our share.
“The [oil] price completely depends on [the] market situation and we have a surplus of supply now. Maybe some countries must cut their share and many countries [must] get back their share,” Esfahani said in Moscow.
As per recent IEA estimates, OPEC output went up by 131,000 barrels per day (bpd) in January, pumping 32.3 million bpd. Iran and Iraq were the main contributors to this jump in output.
And while markets threw up some interesting cues last week, yet, at the beginning of the week, the prospects for an emergency OPEC meeting to discuss any coordinated output cut appeared dismal. Venezuelan energy minister Eulogio Del Pino dashed to Riyadh last Sunday to see Oil Minister Ali Al-Naimi. Before coming to Riyadh, Del Pino was in Russia, basically to garner Moscow’s support for a coordinated output cut.
And although Minister Naimi termed the meeting with his Venezuelan counterpart “successful” having taken place in a “positive atmosphere,” yet, the comments made were noticeably lacking any mention of an agreed strategy on the issue. “Nothing really happened at the meeting,” an OPEC official told The Wall Street Journal. And this pricked the air out of the output cut chatter.
Consequently prices were down as much as 3.8 percent last Monday, the day after the meeting, as supply overhang concerns grew. In fact crude markets were seen on a losing streak for the first few days of last week, before moving to positive quarters in the aftermath of UAE Oil Minister Suhail Al-Mazrouei’s statement on the issue.
Reaching a consensus on output cuts is a difficult task. There are definitely a number of impediments, before major stakeholders could come to an arrangement on the issue. Lack of trust is holding them back. Geopolitics too continues to play a role.
There are indications now that King Salman is scheduled to travel to Moscow. Saudi Arabia’s Custodian of the Two Holy Mosques King Salman plans to visit Moscow in mid-March, RIA news agency reported last Wednesday, citing Kremlin aide Yuri Ushakov.
Although as per Ushakov, the meeting agenda was still to be decided, yet most feel that the state of oil markets would definitely be as issue of interest between the two. Political goodwill has always been an important element in achieving breakthrough on global energy chessboard. The current scenario is no different!
And thus for the time being, while Cushing is brimming with stocks, at the highest ever level and the OPEC is continuing to keep output at or around current levels, no peace for the markets could be guaranteed. With pundits pointing to $20, keeping their heads high, crude markets could be in for some more battering, one can’t help underlining.
