OPEC meeting 'might be one of the worst since 2011' amid differences over supply

  • The forthcoming meeting between OPEC and non-OPEC oil producers like Russia could be one of the most fractious in recent years with competing interests and demands at play.
  • OPEC's production policy will dominate the agenda when the world's major oil producers meet in Vienna on June 22.
  • Arguments are expected over whether to increase production or maintain supply as it is.

The forthcoming meeting between OPEC and non-OPEC oil producers, including Russia, could be one of the most fractious in recent years with competing interests and demands at play, according to oil market experts.

OPEC's production policy will dominate the agenda when the world's major oil producers meet in Vienna on June 22, with arguments expected over whether to increase production or maintain supply as it is.

Saudi Arabia and Russia are reportedly ready to increase oil output while others like Iran and Iraq are against such a move. As such, the discussions might not be pretty, the head of commodity research at Commerzbank told CNBC Thursday.

"It might be one of the worst OPEC meetings since 2011," Eugen Weinberg told CNBC's "Squawk Box Europe," explaining that the differences in opinion over production could cause problems.

An OPEC meeting in 2011 was marked by infighting between members and disagreements over whether to tackle high oil prices (then around $118 a barrel) by increasing production. Gulf states wanted to increase supply to ease prices but were outnumbered by other OPEC members, including Iran and Venezuela, that wanted to maintain supply levels. At the time, Saudi Arabia described the summit as "one of the worst meetings we have ever had."

Weinberg said OPEC would try to find a solution this time but it might not be so simple.

"I think OPEC will try to somehow moderate the current situation but it will be very difficult given their opposite sides and the huge difference and the divergence in the views from the countries with no spare capacity like Iran and Iraq on one side who are pushing for no production increase and the others like Russia and Saudi Arabia and Kuwait who have more spare capacity and are wishing to increase production on the other side," he said.

"Whether an agreement will be possible in this situation is questionable," he added.

Reassuring consumers

The June 22 meeting will see officials from each of OPEC's 14 member countries meet with non-OPEC producer Russia to discuss what to do next with a deal that has seen them collaborate to curb production in order to support prices.

The meeting comes as the U.S. government is reportedly pushing for Saudi Arabia and other OPEC members to hike oil production. In April, President Donald Trump publicly lashed out at rising prices which have hit consumers hard in the States. In addition, U.S. Treasury Secretary Steven Mnuchin said last month that Washington was trying to persuade oil producers to increase supply and offset the impact of forthcoming sanctions on Iran.

OPEC President, Saudi Arabia's Energy Minister Khalid al-Falih, and OPEC Secretary General Mohammad Barkindo talk to journalists before the beginning of a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, May 25, 2017.
Leonhard Foeger | Reuters
OPEC President, Saudi Arabia's Energy Minister Khalid al-Falih, and OPEC Secretary General Mohammad Barkindo talk to journalists before the beginning of a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, May 25, 2017.

There are also concerns about supply shortages from OPEC member Venezuela, which is experiencing economic and political upheaval. Amid fears over shortages from some major producers, Saudi Arabia and Russia have signaled that they're likely to gradually revive oil output in the second half of the year — which would likely cause prices to weaken.

Saudi Oil Minister Khalid Al-Falih said in May that the country is "sharing the anxiety of consuming nations" and his comments were echoed by Russian Energy Minister Alexander Novak who said that Russia is ready to increase production soon. But Novak warned that a decision should be taken at the OPEC meeting and should be unanimous. The ministers are due to meet on June 14 ahead of the official OPEC summit.

The OPEC and non-OPEC strategy that has been in place since November 2016 has certainly worked to increase prices from the lows of around $25 a barrel in 2014 — when the glut in global supply hit home — to currently trade around $75 for Brent and $65 for West Texas Intermediate.

Commerzbank's Weinberg said it is likely that major oil producers at the June 22 meeting will try to reassure consumers that they are ready to increase production if Iranian oil is taken off the market, to allay fears over price rises.

"If the production increase is not in the range of 500,000 plus (barrels per day) I think the market might be disappointed and might push higher. But I think that what is really going to happen is that the Gulf nations as well as Russia will reassure consumers that despite the possibility of Iranian sanctions in the fourth quarter they will be satisfying the needs of the customer."