Pressure building on OPEC to act on oil price fall
November 17, 2014 -- By Margaret McQuaile in London
High-level OPEC diplomacy is under way as pressure builds on the oil producer group to stem the sharp decline in oil prices that the International Energy Agency has warned could continue into the first half of next year.
OPEC's scheduled November 27 conference in Vienna has effectively started, with Iranian President Hassan Rouhani, the week ended November 14, sending messages via oil minister Bijan Zanganeh to the rulers of Kuwait and Qatar. On November 18, Zanganeh will head to the UAE.
Venezuelan foreign minister Rafael Ramirez, who continues to lead Venezuela's OPEC delegation despite his move from the oil ministry in September, last week visited Algeria, Qatar and Iran, and also non-OPEC Russia.
Analysis continues below...
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Brent crude, as high as $115/barrel a few days after OPEC's previous meeting in June, slid below $77/b on November 14, but has since rebounded to trade above $78/b on November 17.
The energy ministry of non-OPEC Mexico on November 13 said energy minister Pedro Joaquin Coldwell and visiting Saudi oil minister Ali Naimi had agreed on the need to use "all necessary efforts to stabilize world oil markets."
Mexico has collaborated with the oil producer group on output strategy in the past, but it was far clear from the Mexican energy ministry's statement whether any concrete measures to stabilize markets had been discussed in the meeting.
Any OPEC cut would require a large contribution from Saudi Arabia, but Riyadh has yet to give a clear signal as to its intentions.
Saudi oil minister Ali Naimi last week broke a two-month silence on Saudi oil policy to say that Saudi Aramco's recent series of crude price cuts were in line with "sound marketing procedures" and should not be seen as evidence of a price war.
What Naimi didn't say was whether he thought OPEC needed to take action in Vienna to rein in crude output.
Nor did he make any comment on current price levels or the market situation.
OPEC's upcoming meeting will have to make decisions on whether or not to cut output on the basis of what it knows -- that its own experts and key forecasting bodies such as the IEA expect lower demand for OPEC crude next year because of rising non-OPEC output -- and what it doesn't.
There are several unknowns, including the potential impact of political instability in Libya on the country's oil output.
But perhaps the biggest unknown, and one that will undoubtedly affect OPEC's discussions next week, is the outcome of the final leg of nuclear talks between Iran and six world powers in Vienna.
The deadline for a comprehensive agreement is November 24.
If the talks are successful, sanctions will be removed, including the swinging measures that have slashed Iran's crude exports by more than 1 million b/d over the past couple of years, and OPEC will have to factor into its discussions the potential for a substantial increase in Iranian oil flows at some point during next year.
A number of analysts estimate the volume of crude OPEC needs to cut at between 1 million and 1.5 million b/d.
It's almost impossible to predict what OPEC will decide next week, but if ministers do end up with a consensus on a cut it's unlikely that the current 30 million b/d ceiling, with no individual country quotas, will be seen as a credible basis for it.
IEA chief economist Fatih Birol said last week that the sharp decline in oil prices was good news for consumers but threatened investment in future supply.
Birol warned that that US capital spending could drop by 10% next year if oil prices were to remain at current levels.
Later the same day, the US Energy Information Administration, statistics arm of the Department of Energy, trimmed its previous forecast of US crude production in 2015 by an average 80,000 b/d, saying drilling activity was likely to be lower because of an expected average price of below $78/b for WTI crude.
The stakes are high, and not only for OPEC.
Next article: No need for panic over oil price plunge, OPEC chief says