A twenty-five percent plunge in oil prices might seem to make curbing the supply of crude a no-brainer for the world’s oil producers.
And yet it looks increasingly possible that the 161st ordinary meeting of the Organization of Petroleum Exporting Countries, or OPEC, in Vienna this week could end in a virtual stalemate. The meeting, slated to begin Thursday afternoon local time, could even be a repeat of last June’s at which no communique, or statement, was issued as no agreement as to output levels at the time could be made.
Already, sources in Vienna are speculating that this year’s meeting could last into Friday. The internal politics which have long plagued OPEC threaten to become a wider rift as member nations, including Saudi Arabia, continue to produce oil at levels above the 30 million barrel per day ceiling they agreed to in December.
Venezuela, for one, has already expressed its displeasure and there are indications it will press not just for compliance with the 30-million-barrel level but with an even lower ceiling at this week’s meeting to help stem the rapid recent drop in oil prices. Saudi Arabia, the juggernaut in terms of output and influence, meanwhile seems to prefer to keep output at roughly current levels of 31.6 million barrels per day as of May. It has some justification in that it is working to offset a continued decline in Iranian crude output that will fall even more sharply come July 1 when European Union sanctions go into force.
Indeed, the Saudi oil minister, Ali al-Naimi, said in an interview with the Gulf Oil Review just before the meeting this week that "Our analysis suggests that we will need a higher ceiling than currently exists." He appeared to backpedal from that statement upon arrival in Vienna on Monday evening, however, telling reporters only that “maybe” the ceiling would be raised.
Meanwhile, OPEC economists, who traditionally gather ahead of the main meeting, expect global oil demand to grow by 900,000 barrels a day this year despite the recent downshift in global growth. That, however, is on the high end of their range of forecasts, which also include scenarios for an increase of 600,000 or 400,000 barrels on weaker fundamentals, according to a source familiar with the discussions.
All told, as one OPEC watcher put it, the question for Thursday’s meeting comes down to “31 or 30”; that is, will OPEC set its production target at 31 million or keep to its current 30 million barrel-a-day target. Of course, oil analysts are quick to caution that what matters isn’t the decision itself but rather the degree to which member nations actually stick to the quota. A higher quota figure won’t necessarily be as bearish for crude prices as it might initially seem if by sticking to it OPEC members actually curb their production levels going forward.
At the same time, there is the pressing decision as to who will replace outgoing Secretary General Abdalla Salem El-Badri, of Libya, whose second three-year term is about to expire. The selection of the Secretary General is a delicate matter given that it has to receive unanimous approval. There are indications of support for selecting the Iraqis; were that politically unpalatable to all parties, however, sources say it is possible that El-Badri’s term could be extended for a year. Or it could perhaps fall to the Kuwaitis, who will assume the rotating presidency next year, to put forward a candidate.
Given all this, plus the backdrop of a wildly uncertain global growth outlook predicated on the politics of Europe’s debt crisis, it is perhaps no wonder that a swift resolution to Thursday’s meeting looks in doubt. The possibility of an extraordinary meeting—that is, one that occurs between the now twice-annual ordinary meetings—later this summer or early fall cannot be ruled out, according to some observers. By then, perhaps, OPEC officials would have greater clarity on the global demand situation, and Iran’s nuclear program too. Something to keep in mind if this week’s meeting does come to a rather unsatisfying end.