No change in policy seen as Opec readies for Vienna meeting

Abu Dhabi: As Organisation of the Petroleum Exporting Countries (Opec) members get ready to meet in Vienna on December 4, analysts said there may not be a change in the policy of the powerful grouping supplying a third of the world’s oil.

“Saudi Arabia, Kuwait, the UAE and Qatar, which pump more than half of Opec’s daily output of 32 million barrels a day [mbd], will reject pressure to cut production to bolster the oil price despite warnings that prices risk sliding even below $40 (Dh147) per barrel,” said Mamdouh G. Salameh, an international economist and World Bank consultant on oil and energy issues.

“They want a solid commitment from all other producers, especially non-Opec member Russia, before they agree to consider production cuts across the board. However, Russia will not agree to cut production,” he added.

According to him, Russia is already focusing on consolidating its market share in China, the biggest energy market in the world, from which it has just ousted Saudi Arabia as the largest supplier of crude oil.

“A continued refusal by Saudi-led Opec to cut production could push prices down to $40 per barrel,” he said. “However, were Opec to cut production by 2mbd, prices could jump overnight to possibly $80 per barrel.”

The group, comprising 13 countries from the Middle East and Africa to Latin America, stuck to its position of keeping output unchanged when it met in Vienna in June despite pressure from member countries. It produces more than 30 million barrels of oil per day.

Edward Bell, a commodity analyst at Emirates NBD, expressed doubts over whether the group will agree to production cuts to prop up prices.

“Production cuts would have significantly negative consequences for GCC economies and run contrary to all upstream investment plans in the region,” Bell said. “Agreeing on how much each country had to cut would be extremely difficult and create further fractions within Opec.”

Analysts also said the strategy of driving out high cost producers is yielding results. Two thirds of the production of shale in the United States are showing signs of exhaustion. Eagle Ford, Bakken and Niobrara, which together make up 40 per cent of United States oil output, peaked in early 2015, and the Permian field, which produces 22 per cent of US oil, has stopped expanding production.

“Rigs are falling and depletion rates going up. Saudi [Arabia] is very attentive to these developments. A steep increase in prices might reactivate investment into these dying fields, so there’s a strong incentive to keep going,” said Francisco Quintana, head of Economic Research at Asiya Investments.

At the Abu Dhabi International Petroleum Exhibition and Conference (Adipec) last month, Opec secretary-general Abdullah Salem Al Badri defended the decision to keep output unchanged.

Al Badri said both Opec and non-Opec countries should share the responsibility of stabilising the market. “We are not alone in the market,” he said.

The entry of Iranian oil next year will be another crucial issue. The country can increase oil production by 500,000 barrels a day in a week after sanctions end and increase this to 1 million barrels a day in one month, according to Iranian Oil Minister Bijan Zanganeh.

“With Iran, it is not really about output cuts or not as they should be more concerned about lifting the sanctions. Therefore, as long as their crude oil is able to return to the market, unhindered, I do not think they would involve themselves too much in what Opec would be doing,” said Daniel Ang, an analyst from Singapore-based Phillip Futures.

Indonesia will rejoin the group as its 13th member, almost seven years after suspending its membership.