Still Too Many Obstacles Ahead of OPEC Oil Production Cuts
U.S. electoral troubles may have accounted for a lackluster day in Wall Street today. But the price of oil was the real downer on the markets.
The Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna was supposed to give oil prices a boost. Instead, it sent them down to September’s level, at just over $48.00/barrel. The Vienna meeting has clearly failed. It was supposed to formally put the Algiers summit agreement into practice.
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In Algiers, at the end of last September, OPEC members agreed to impose a ceiling on oil production. A few weeks later in Istanbul, OPEC discussed the cuts—having failed to implement them—with major non-OPEC producers like Russia. The Vienna summit represented the last chance, possibly for the rest of the year, to agree to price-lifting production cuts. Instead, the outcome was $48.00 a barrel.
The two days of talks in Vienna during the past weekend have failed to lift oil prices from the current state of limbo. One of the major factors contributing to the collapse of talks at the OPEC summit came from Iran and Iraq. Iraq has recently become the world’s second-largest producer of oil, so its weight within OPEC is second only to Saudi Arabia. Iraq has insisted on keeping its output levels due to its complex political and institutional situation under the throes of ISIS.
The surprise came as even Libya and Nigeria have advanced similar requests to avoid production cuts. The significance of the Vienna summit is that it goes against everything that was agreed to in Istanbul. Even Russia, which has been advocating cuts for months, wants OPEC members to stop the infighting before it agrees to production cuts.
On November 30, a month from now, OPEC members meet once more in Vienna. This was the only result of the recent OPEC summit after almost a full day of talks. Once again, the markets are left wondering what will happen to OPEC. Do the Algiers cuts have any chance of being implemented? So many countries claim exceptions—like Iraq, for example—which suggests failure is likely on November 30 as well.
Here’s what does not bode well for cuts. First, Iraq, while successful at taking back areas until-recently held by ISIS, will need more time. In other words, Iraq will remain exempt from cuts. Then, there are Nigeria and Libya. Both have experienced geopolitical turmoil, and both want to increase production. Libya wants to add over half a million barrels a day. (Source: “Market Currents: Libyan oil exports on the rise,” FuelFix, October 25, 2016.)
Then, there is Iran. It’s still recovering from the western sanctions that were lifted last year. It has no appetite for production cuts; it wants increases. Even Russia’s Rosneft might increase production slightly in 2017. (Source: “How Russia is ramping up its oil output in 2016-2017,” Daily Mail, October 31, 2016.)
