OPEC is not what it used to be.
Ahead of a planned meeting of most of the cartel and other major oil producers in Qatar to approve a freeze on oil production, some OPEC members are pumping record levels of crude even as prices wallow at less than half their level two years ago — a clear sign of the dissension gripping the group.
While markets might react off any decision made today in Doha, analysts predict low prices would continue through this year and into next year, as producers keep pumping to keep their government budgets afloat.
Photo: AP
That calls into question what long-term gain producers can expect from a promised freeze and indeed, how much power OPEC now wields as US shale firms stand poised to re-enter the market if prices rise.
“We put the probability of a successful freeze agreement ... at 50 percent,” Societe Generale analyst Michael Wittner wrote this month. “There is simply a tremendous amount of uncertainty.”
At least 15 oil-producing nations representing about 73 percent of world output are expected at the Doha meeting, Qatari Minister of Energy and Industry Mohammed bin Saleh al-Sada said.
The gathering follows a surprise Doha meeting in February between Qatar, Russia, Saudi Arabia and Venezuela, in which they pledged to cap their crude output to their January levels if other producers do the same.
The countries hope the cap would help global oil prices rebound from their dramatic fall since summer 2014, when prices stood at more than US$100 a barrel, though no one is talking seriously about the more dramatic step of reducing global supply by collectively cutting production for now.
Prices dropped briefly to less than US$30 a barrel, a 12-year low, in January, but have climbed to about US$40 a barrel this week, boosted in part by market speculation about the coming meeting.
The low prices have squeezed wealthy Gulf nations too, though less dramatically, with rulers across the United Arab Emirates raising fees on airport departures and parking.
Analysts said Bahrain, Oman and Saudi Arabia face the biggest threat from the low prices, especially if no deal is struck.
OPEC kingpin Saudi Arabia, which produces about 10 million barrels of oil per day, is rapidly burning through cash reserves while keeping its production high to fund its ongoing war in Yemen and cover government spending.
“If nothing is decided in Doha, then the fiscal constraints will accelerate much more rapidly than if action is taken and oil prices respond,” Dubai-based Moody’s analyst Mathias Angonin said.
However, several spoilers lurk for oil producers, chief among them OPEC member Iran, which late on Friday announced it would send an emissary to the meeting.
With many international sanctions lifted after its nuclear deal with world powers, Iran began exporting oil into the European market again and is eager to claw back a market share. It produces 3.2 million barrels of oil a day now, with hopes of increasing to 4 million by April next year.
On Friday, the Iranian Ministry of Oil reiterated it would not join a freeze “before it brings its oil exports to the pre-sanctions levels.”
Saudi Arabia has already said it would not back any freeze if Iran does not agree to it, throwing into question whether any deal would be agreed to at all.
Saudi Arabia seems determined to ride out the low prices that could squeeze Tehran.
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