Being in Vienna prior to and after the 172nd Opec Ministerial Conference raised a lot of memories. The last time I attended a conference was almost 20 years ago and therefore it was surprising how some aspects accompanying the meetings have changed so much.

The media interest is now at a much lower level than it used to be. There were times when almost a thousand journalists, traders and analysts attended to report on meetings and to swarm the hotel lobbies where ministers stayed to seek a word here and a statement there. The same thing is happening now ... but hardly 200 are in attendance.

One-day Opec conferences are now in vogue. Gone are the days when meetings were so contentious and took a much longer time to come to conclude. I remember a 1986 meeting which took 18 days.

The other noticeable change is the increase in the extent of “oil diplomacy” and the numerous contacts and meetings between ministers to iron out differences or to find appropriate compromises. This was amply demonstrated this time when the final decision was nearly fully known 10 days before the conference.

Not surprising then that the Joint Opec-Non-Opec Ministerial Monitoring Committee (JMMC) and its Joint Technical Committee (JTC) went to the full or perhaps beyond its mandate not only to report on members’ compliance with the production agreement but to recommend to extend the Declaration of Cooperation of December 10, 2016, where the reduction of 1.8 million barrels a day was agreed by a further nine months.

Rebalancing

Many market observers doubted the compliance given the history of previous such agreements. But compliance this time was indeed impressive as reported by the JTC for April’s production.

The announcements by Saudi Arabia and Iran and the flight of the Saudi minister to Baghdad to bring Iraq into the fold a few days before the conference made the work of the Opec meeting on May 25 and the subsequent meeting with representatives of 10 non-Opec producers look an easy run. The result was that “producing countries underscored the importance of continuing efforts to help stabilise the oil market, in the interests of all oil producers and consumers.”

The rollover of the production agreement, which effectively freezes the participating countries’ production level, was emphasised by the President of the Opec Conference, the Saudi Minister Khalid A. Al Falih, “The goal of accelerating rebalancing has been partially achieved and the market in my opinion is on its way to full recovery. The drawdown of inventories has clearly begun and I expect this trend to accelerate as we enter the high demand season and continue our high conformity levels. However, to bring the inventories to the average trend of the last five years, more time is needed.”

And so the meetings were concluded on a positive expectation that the oil market will stabilise and prices perhaps improve. In fact, prices were improving since the first week of May, when the price of the Opec Basket (OB) of crude was $46.60 (Dh171) a barrel and rose to $51.96 on the eve of the conference.

Deeper cut

But the market wasn’t impressed by the producers renewed cooperation and oil prices tumbled immediately after the meetings as WTI and Brent prices declined by almost 5 per cent — or $2.46 and $2.5 a barrel — on their exchanges respectively.

Perhaps the market was expecting a deeper cut in production, which is unrealistic under the circumstances for many producing countries. The market may have been influenced by Trump’s decision to sell half of the US Strategic Petroleum Reserves within 10 years, which would effectively add 100.000 barrels a day to what is already considered ample supply.

The decision is also seen to strengthen the position of the shale oil produces in the US, where drilling rigs are on the increase and shale companies have made tremendous efficiency improvement and cost reduction as to make any Opec and non-Opec agreement less effective than previously thought.

But the market also decided to give the producers the benefit of the doubt as it rebounded the next day and prices recovered the majority of their losses and perhaps would do better in the coming days.

However, let there be no doubt that considering the still high level of inventories and the anticipated increase in shale oil production of almost 1 million barrels a day in the next 12 months, a substantial increase in oil prices is very unlikely. Producers would be lucky to stay within the range of $50 to $55 a barrel to the end of March 2018.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.