Oil prices dive as OPEC rolls over
December 3, 2014 -- By Margaret McQuaile in London
Despite the push by some of OPEC's less affluent members for a crude output cut, it became clear on the eve of the group's November 27 meeting in Vienna that powerhouse producer Saudi Arabia had no appetite for cutting production.
The market would stabilize itself eventually, oil minister Ali Naimi said.
Prices resumed their downward helter skelter as the meeting broke up.
Not only had OPEC decided to do nothing at all and to fix its next meeting for a June 5 -- a date six months away, but it had also omitted from its post-meeting press release any mention of a pledge to comply with the 30 million b/d ceiling that has been in place since the beginning of 2012.
Analysis continues below...
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Brent crude traded as low as $67.53/barrel December 1, a 41% plunge from the $115/b traded in mid-June, although it has since rebounded and was trading December 3 above $70/b.
Venezuelan foreign minister Rafael Ramirez, desperate for an agreement that would boost prices, had been particularly active in the runup to the meeting embarking on a tour that took him to OPEC members Algeria, Qatar and Iran and to non-OPEC Russia.
Ramirez also set up a meeting in Vienna on November 25 attended by himself, Saudi oil minister Naimi and the energy ministers of non-OPEC Mexico and Russia.
But any hopes of a pact between these four leading OPEC and non-OPEC oil producers to reduce supply in hopes of reversing the steep decline in oil prices were dashed almost as quickly as they were raised, with the ministers agreeing only to convene again in three months' time.
It remains unclear whether Saudi Arabia would have backed an OPEC cut had Russia and Mexico agreed to restrain their own output, although a report published on December 1 by the official Saudi Press Agency made clear that Riyadh wanted the burden of price support to be shared.
The Saudi cabinet had met and had "expressed its satisfaction with this decision which reflects the cohesion, unity and foresight of the organization to which the kingdom attaches particular importance," SPA reported.
The cabinet had "also pointed out the kingdom's interest in the stability of the international oil market and that cooperation by OPEC and non-OPEC producers is a joint responsibility to achieve this stability," it said.
Naimi has not said publicly why he did not want a cut but it's not hard to come up with a load of reasons as to why he might have rejected one.
OPEC is already losing out to collective non-OPEC supply growth which will more than cover expected growth in world oil demand for the next couple of years.
A cut would diminish OPEC's share of world oil markets further.
Furthermore, the US shale boom has reduced the United States' import dependency sharply, driving previous suppliers towards Asia and increasing the competition there.
And there is also the prospect of a nuclear agreement between Iran and six world powers that could see a substantial increase in Iranian crude flows.
The deadline for the ongoing negotiations had been set for November 24, three days before the OPEC meeting, but this has been extended to July 1.
But a collective OPEC cut was never going to happen.
Who would cut? And from what baseline, given that the ceiling does not include individual country quotas?
Sanctions-strapped Iran and strife-torn Libya, whose output is running at less than half of pre-2011 uprising levels, would not have participated in any cut.
Nor would Iraq, which hasn't been part of the OPEC output management system for nearly a quarter of a century.
Saudi Arabia's game plan, meanwhile, remains open to interpretation.
Energy Aspects makes the point that if Riyadh had wanted to drive prices lower it would have increased output and flooded the market.
What the rollover does show, however, is OPEC's inability to bridge the gap between its Gulf Arab members and the others, it says.
"A two-tiered OPEC is perhaps more visible now than ever before," the consultancy says.
OPEC, it concludes, can no longer be relied upon to cut production to balance the market.
An emergency meeting cannot be ruled out at some point in the next few months, especially given the forecasts of a big drop in demand for OPEC oil in the first half of next year.
But, again, the question presents itself: who would cut?
And in the meantime, prices may be settling into a new, lower range that all producers will have to try to live with.
Next article: Pressure building on OPEC to act on oil price fall