Investors were sensing a bold agreement between Opec and non-Opec producers to cut oil output as the attempt to raise prices was being cooked up behind the scenes. But sealing that deal did, perhaps, not serve the interests of the world’s largest exporter — Saudi Arabia.
Opec member Venezuela, arguably the country most desperate for an agreement due to it crumbling economy, sounded an optimistic tone that a deal to cut production was going be secured.
“We’re on a very, very, very good path,” said Eulogio Del Pino, Venezuela’s oil minister and president of state oil company PDVSA. He had completed a week- long tour of the Middle East and Russia in an attempt to secure commitments by the major producers.
Instead, there was only an agreement to hit the pause button and freeze production at January output levels. This effort showed a collective awareness of market pressure, but required no sacrifice by the producers themselves. It was telling what Saudi Arabia’s powerful oil minister had to say after what has been defined now as the Doha agreement.
“We don’t want reduction in supply. We want to meet demand and we want a stable oil price,” said Ali Al Naimi.
That of course went counter to the demands of Venezuela and Nigeria who both went public over the past month suggesting that current prices are imposing too much pain on their respective economies. Ratings agency S&P concurred and downgraded Saudi Arabia, Bahrain, Brazil, Oman and Kazakhstan two days after the plan to freeze production.
But the energy minister of Qatar and current rotating president of Opec clarified the priorities behind the move between Opec and non-Opec players. “This step is meant to stabilise the market and to be beneficial not only to the oil producers and exporters, but also to the world economy,” said Mohammad Al Sada, who spearheaded this effort with his Venezuelan counterpart.
A day later, the duo went to Tehran to gauge interest from Iran, which supported stabilising the market, but after having sanctions lifted last month publicly sidestepped the issue of freezing its own production. The initial market rally before the Doha meeting was triggered by comments from the UAE’s Minister of Energy Suhail Mohammad Al Mazroui. While on a state visit to India, Al Mazroui told Sky News Arabia that Opec was willing to cooperate with non-Opec producers.
Perhaps investors became overly excited since it signalled a potential shift by the Gulf producers who have steadfastly backed the Saudi Arabia- led strategy to secure market share rather than protect prices. Even before the Doha meeting, the chairman of Saudi Aramco did not hide the kingdom’s position.
“We are not going to accept to withdraw our production to make space for others,” said Khalid Al Falih, chairman of Saudi Aramco, at the CNN energy roundtable at the World Economic Forum.
But like the UAE, he too left the door open if there is a commitment from all the major players. “If there are short term adjustments that need to be made and if other producers are willing to collaborate, Saudi Arabia will also be willing to collaborate,” Al Falih concluded.
Getting all the players lined up remains no simple task — even for freezing, not cutting production. Take Russia for example. Energy minister Alexander Novak said ideas were proposed “to cut production by each country by up to 5 per cent”, but added at the time, “it was too early to talk about it”.
Indeed it remains too early for such a bold move.
But Igor Sechin, the chief executive of Russia’s largest oil company, Rosneft, took a harder line. He pointed to Opec’s overproduction for the near 50 per cent correction since June of last year.
Actually, there is plenty of finger pointing to go around. According to the International Energy Agency, the 13-member group produced a record 32.6 million barrels a day in January, and Russia at just a hair below 11 million barrels is maintaining record output.
That is why the IEA recently said that supply could exceed production in the first half of this year by 1.75 million barrels a day and may be what eventually forces the largest producers in the world to find some sort of solution to cut production.
But some believe Saudi Arabia will wait things out, despite budgetary pressures. “The Saudis are like a policeman in a traffic jam when nobody has listened to them and they have gone away and the traffic is messy,” said Fereidun Fesharaki, Founder and Chairman of consultancy FACTS Global Energy.
“So when everyone is prepared to listen, they come back,” suggesting that may not happen until 2017.
