OPEC holds crunch meeting today without president Diezani

The Organisation of Petroleum Exporting Countries (OPEC) will today hold what many have termed a crunch meeting, as members of the cartel who favoured cut in output will battle it out with the other group, led by Saudi Arabia, who favour defending market share through maintaining its current output of 30 million barrels per day.

“OPEC has a stoic position with regards to its strategy of retaining output in the current climate. It will most likely stick with its November ‘take no action’ policy in response to the oil price. The defence of its market share has been a major pre-occupation since oil prices started their steep fall in June 2014”, said Rolake Akinkugbe, vice president and head, energy and natural resources at FBN Capital.

 

BusinessDay gathered that Diezani Alison-Madueke, Nigeria’s former petroleum minister, who was elected the President of the oil cartel in the November meeting, may not preside over today’s 167th OPEC meeting as she has since ceased being Nigeria’s petroleum minister.

Nina Missethon, secretary in the public relations and information department of OPEC said in an e-mail response to BusinessDay that “Madueke’s position as President of the OPEC Conference was in her capacity as Minister of Petroleum Resources”.

But Industry experts have said that Nigeria’s current fiscal problems are unconnected with the OPEC strategy of maintaining production output which led to a slide in oil prices, but rather as a result of mismanagement of resources.

Said an industry expert who did not wish to be identified, “Nigeria has not learnt anything from past mistakes. The huge revenue earned by the country when crude oil was selling above $100 per barrel was mismanaged and all we have to show for it is the under $3 billion in the Sovereign Wealth Fund (SWF)”.

But, Akinkugbe insisted last night that last November’s stance remains a double-edged sword that could swing anywhwere. “OPEC’s November 2014 move remains a double-edged sword. If its strategy continues unchecked, and oil prices rise too far, then its members could struggle to retain market share, since buyers would naturally search for cheaper cargo deals elsewhere”, she added.

However, some analysts said last night that there may be resistance at today’s meeting by the members opposed to the November 2014 decision. This group has already criticised the stance earlier this year but it is likely that OPEC will maintain its daily production target of 30 million barrels per day, thereby ratifying the Saudi Arabia strategy.

“It may be more difficult to find consensus on the way forward today”, said Akinkugbe.

The decision by OPEC to stick to its target of 30 million barrels a day, appears to be working. Oil prices have recovered more than 40 percent from a six-year low. The rebound will help vindicate the approach taken by Saudi Arabia as it steers OPEC to favour market share over prices, in a bid to drive out high-cost producers.

According to Akinkugbe, “OPEC’s view is that high-cost shale supplies in the US are now being culled, and that oil demand is picking up. There is empirical evidence to support this view, such as the fact that close to $100bn in new oil and gas projects have been put on hold. However, the rise in demand is partly attributed to the stockpiling of oil in China, as that country significantly increased crude imports in May”.

Reports suggest that growth in US shale oil, the primary competition for OPEC, is tapering off in the face of lower prices.

“If OPEC’s strategy is truly effective, we should probably have witnessed a more serious halt to shale production growth, and a steep rise in prices above $75/bbl. Brent oil prices have only settled around the $65/bbl mark. In any case, most industry forecasts still suggest US output will increase by at least 500,000 barrels in 2015.

“Moreover, it seems that the prospect of Iranian oil returning to the market has also weakened the effectiveness of OPEC’s strategy,” said Akinkugbe.

It will be recalled that during OPEC’s November 27 meeting, Saudi Arabia, the United Arab Emirates, Kuwait and Qatar rebuffed objections from the other eight members, in particular Iran, Venezuela and Algeria, to their plan of maintaining output as the strategy for defending market share.