Tag Archive

OPEC March oil output sinks to 11-month low – Reuters survey

Comments (0) Actualites, Middle East, Oil

LONDON (Reuters) – OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output, a Reuters survey found, sending compliance with a supply-cutting deal to another record.

The Organization of the Petroleum Exporting Countries pumped 32.19 million barrels per day last month, the survey found, down 90,000 bpd from February. The March total is the lowest since April 2017, according to Reuters surveys.

OPEC is reducing output by about 1.2 million bpd as part of a deal with Russia and other non-OPEC producers to get rid of excess supply. The pact started in January 2017 and runs until the end of 2018.

Adherence by producers in the deal rose to 159 percent of agreed cuts from 154 percent in February, the survey found. There was no sign that other producers had boosted output to cash in on higher prices or to compensate for the Venezuelan decline.

Oil has topped $71 a barrel this year for the first time since 2014, and was trading above $67 on Wednesday. Still, OPEC says supply restraints should be maintained to ensure the end of a glut that had built up since 2014.

In March, the biggest decrease in supply came from Angola, which exported 48 cargoes, two fewer than in the same month of 2017. Natural declines at some fields are weighing on output.

Production in Libya, which remains unstable due to unrest, slipped because of stoppages at two fields, El Feel and El Sharara, setting back 2018’s partial recovery in output.

And production fell further in Venezuela, where the oil industry is starved of funds because of an economic crisis. Output dropped to 1.56 million bpd in March, the survey found, a new long-term low.

Output in OPEC’s largest producer, Saudi Arabia, dropped by 40,000 bpd from February’s revised level, even further below the kingdom’s target.

OPEC’s No. 2 producer, Iraq, pumped more. Exports from the south, the outlet for most of the country’s crude, rose despite maintenance at a loading terminal. Exports declined from the north but domestic crude use increased.

Among others with higher output, the biggest rise came from the United Arab Emirates, where production had dropped in February due to maintenance. Even so, the UAE is still pumping below its OPEC target and showing higher compliance than in 2017.

Output climbed in Qatar, after a dip in February that sources attributed to maintenance. Nigeria also pumped at a higher level, extending a run of more stable supply from Africa’s top exporter.

Nigeria and Libya were originally exempt from cutting supply because their output had been curbed by conflict and unrest. For 2018, both told OPEC that output would not exceed 2017 levels.

OPEC has an implied production target for 2018 of 32.73 million bpd, based on cutbacks detailed in late 2016 and taking into account changes of membership since, plus Nigeria and Libya’s expectations of 2018 output.

According to the survey, OPEC pumped about 540,000 bpd below this implied target in March, not least because of the involuntary decline in Venezuela.

The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data and information provided by sources at oil companies, OPEC and consulting firms.


(By Alex Lawler; Additional reporting by Rania El Gamal in Dubai; Editing by Dale Hudson)

Read more

Angola oil production declines slightly in 2017, profits rise

Comments (0) Actualites, Africa, Business, Economy, Oil

LUANDA (Reuters) – Oil production for Angola, Africa’s No. 2 crude producer, averaged 1.632 million barrels per day in 2017, down from 1.72 million barrels the previous year, the chairman of the state-run oil company Sonangol said on Wednesday.

Angola has been grappling with the effects of generally depressed oil prices on its government finances but is constrained from lifting production because it is committed to OPEC-mandated cuts.

Angola is a member of the Organization of the Petroleum Exporting Countries, and it must limit output in line with OPEC’s commitment to cut output by about 1.2 million barrels per day (bpd) as part of a deal with Russia and others.

Sonagol chairman Carlos Saturnino also told a media briefing that the net profit for Sonangol, which regulates Angola’s oil sector, was $224 million in 2017 versus $81 million the previous year when oil prices were lower.

It was his first briefing since Angola President João Lourenço fired Isabel dos Santos, daughter of his presidential predecessor, from the helm of Sonangol.

Lourenço took power in September and is seeking to win credibility with international investors and shed Angola’s image as an opaque oil economy with rampant corruption.


(Reporting by Stephen Eisenhammer; Writing by Ed Stoddard; Editing by James Macharia)

Read more

Nigerian acting president to sign budget on Monday

Comments (0) Latest Updates from Reuters

ABUJA (Reuters) – Nigeria’s acting president will sign the 2017 budget into law later on Monday, one of his aides told Reuters, as Abuja plans record spending to pull Africa’s biggest economy out of recession.

The OPEC member has been in recession since last year, largely due to low oil prices and militant attacks on the country’s Niger Delta energy facilities. Oil sales usually bring in two-thirds of the government’s revenue.

Vice President Yemi Osinbajo is standing in for President Muhammadu Buhari, who has been on medical leave in Britain since May 7, his second prolonged absence this year. Buhari’s medical condition is unclear.

“The acting president will be signing the budget today,” the presidency aide said.

President Buhari issued a statement saying it was in the interest of the country for Osinbajo to sign the budget into law.

Lawmakers last month passed the record 7.44 trillion naira ($23.6 billion) budget plan, which is bigger than the 7.298 trillion naira draft spending plan submitted by Buhari in December.

Two other presidency sources who did not want to be named also said the budget would be signed on Monday.

Sources said Osinbajo was at an event in the southeastern state of Anambra on Monday and would fly back to Abuja for the budget signing ceremony later in the day.

Last year’s budget, passed in May 2016, was delayed for months due to disagreements between lawmakers and the presidency over spending plans that cut the supply of government money and deepened the economic crisis.

Buhari said in his statement, signed by his spokesman Garba Shehu, that the 2018 budget proposal will be submitted by October and parliament will conclude the process by December so the country can return to a normal budget cycle from next year.


(Reporting by Felix Onuah and Camillus Eboh; Writing by Ulf Laessing and Chijioke Ohuocha; Editing by Hugh Lawson)


Read more

Nigerian oil executive to lead OPEC

Comments (0) Africa, Business, Featured

Mohammed Sanussi Barkindo

The oil cartel appoints Mohammed Sanussi Barkindo to a three-year term as secretary-general beginning Aug. 1.

A Nigerian oil executive who helped develop key global climate change initiatives is the new-secretary general of OPEC.

The Organization of Petroleum Exporting Countries named Mohammed Sanussi Barkindo to a three-year term as secretary-general beginning Aug. 1. Barkindo replaces Abdallah Salem e-Bardri of Libya in the cartel’s top job.

Barkindo is an experienced oil executive who has worked for the Nigeria National Petroleum Corporation for more than two decades and was its director in 2009-10.

He also has deep experience with the oil cartel, including service as its acting secretary-general in 2006 and 15 years on OPEC’s Economic Committee.

Climate change work cited

According to Francis Perrin, Chairman of Energy Strategies and Policies, Barkindo’s work on climate change was also a decisive factor in his appointment.

Barkindo helped produce the United Nations Convention on Climate Change and the Kyoto protocol as the leader of Nigeria’s technical delegation to UN climate change talks.

Perrin said the appointment reflects growing recognition among cartel members of the importance of initiatives to stall climate change as OPEC struggles to find its footing on a shifting global energy landscape.

Barkindo is also seen as a neutral party in simmering regional political tensions between OPEC members Saudi Arabia and Iran as well as disagreements about oil production limits.

Long career as oil executive

Barkindo earned a bachelor’s degree in political science from Ahmadu Bello University in Zaria, a post-graduate diploma in the economics of petroleum from the College of Petroleum Studies at Oxford University in the United Kingdom, and a graduate degree in business administration from Southeastern University in Washington, D.C.

He has also been deputy managing director and chief executive of Nigeria Liquefied Natural Gas and managing director and chief executive of the international trading division of the Nigeria National Petroleum Corporation as well as general manager of the corporation’s London office.

El-Badri had been set to retire in 2013, but stayed another three years because cartel members were unable to agree on a replacement amidst Middle East political tensions and discord within OPEC about whether to limit oil production as prices dropped.

Venezuela, hard hit economically by the oil slump, put forth a candidate, Ali Rodriguez, its long-serving OPEC representative. Indonesia also considered fielding a candidate.

Neutral candidate

Saudi Arabia and other Gulf members said they supported Barkindo for his experience and because Nigeria doesn’t take sides in Middle East power struggles.

While the secretary-general does not have executive power in OPEC, the official often plays the role of a neutral mediator when there are differences within the group.

It likely will fall to Barkindo to mediate ongoing conflict in the oil cartel over whether to limit production to prop up oil prices.

OPEC has seen its influence on global oil prices waning amidst an oil glut coupled with the growth of production outside the cartel, including in the United States and Russia.

OPEC member countries produce almost 37 million barrels a day compared to non-OPEC production of 57 million barrels daily, according to Global Risk Insights.

Disunity amid oil slump

Despite waning influence, OPEC’s unwillingness to set production limits has played a major role in creating an oil surplus, which has precipitated a two-year crisis. The price of oil plummeted to a low of $26 per barrel earlier this year. The current price is about $45 a barrel, less than half price of $110 per barrel in 2014, when the crisis began.

Richer OPEC nations, led by Saudi Arabia, have been willing to take financial hits of low oil prices in order to preserve market share. OPEC has rebuffed calls to limit production by poorer members including Algeria and Venezuela, which have been hard hit by the slump.

After OPEC members again failed to agree on limits in June, experts said the discord underscored the cartel’s waning ability to influence oil prices.

Read more

After two decades, Gabon returns to OPEC

Comments (0) Africa, Business, Featured

Tullow Oil in Gabon

The West African nation becomes the smallest producer of oil in the cartel, producing only 200,000 barrels a day.

More than 20 years after Gabon left OPEC in a dispute over its budget contribution, the West African nation has rejoined the oil cartel.

Gabon returns to the Organization of Petroleum Exporting Countries amid a two-year oil glut that has reduced the cartel’s power to prop up global oil prices.

Gabon was the second former member to rejoin OPEC this year, following Indonesia, which quit in 2008 then returned in January.

Gabon is the smallest producer among OPEC’s 14 member countries. It produces 200,000 barrels of oil per day, but according to the International Energy Agency, the nation’s output is declining.

Gabon, which joined OPEC in 1975, left in 1995 after the cartel refused its request to reduce its financial contribution to the organization, making it more proportionate with its production. At the time, Gabon produced about 340,000 barrels of oil per day, about one percent of total OPEC production.

Struggling with oil slump

Like other OPEC members, Gabon is struggling with the slump in global oil prices, and rejoining the cartel enables the country to strengthen its ties with countries that share similar challenges.

In response to the slump, Gabon is also working to shift more of its economy to agriculture. The nation, with a population of less than 2 million, currently imports nearly all of its food.

Working with Olam International Ltd., the Gabonese are trying to persuade young people to take up farming.

Farming in Gabon

Farming in Gabon

“We need to foster development of an agro-industry here,” Gagan Gupta, country head at the Singapore-based company’s Gabon unit, told Bloomberg. “It’s about creating human capital.”

As part of the effort, about 2,500 Gabonese will observe cocoa farming in Ivory Coast, learn techniques at a palm-oil plantation in Asia, or train as bulldozer operators in Morocco, Gupta said.

Unemployment high, despite growth

Olam also will work with Gabon to develop nearly 250,000 acres of oil-palm plantations.

According to the World Bank, Gabon is an upper-middle-income country that experienced strong economic growth during the last 10 years, mostly from oil and manganese production.

In 2015, oil accounted for 70% of Gabon’s exports, and 20% of the nation’s gross domestic product. Economic growth weakened to 4% in 2015 because of the drop in oil prices, forcing the government to cut investments designed to promote economic diversity.

Even though Gabon’s economy has been growing, it has failed to create enough jobs, the World Bank said. Unemployment in 2010 was more than 20%.

Nations seek production freeze

OPEC, meanwhile, has seen its global clout diminished. The cartel has attempted to negotiate a deal with Russia to freeze production levels in order to prop up prices. However, OPEC disunity has stalled the effort so far.

In June, Venezuela oil minister Eulogio del Pino said talks might revive in September, when Iran reaches pre-sanction output levels. Iran, freed last year of international sanctions that limited production, has sought to boost output and has resisted limits.

Del Pino said he also would propose that OPEC adopt “production ranges” that would allow production to fluctuate, rather than talking about an unpopular production ceiling.

Venezuela has suffered badly from the oil price collapse production declines. Del Pino said recent rains that helped power production have prompted a recovery.

In 2014, OPEC abandoned its policy of limiting oil production to shore up prices.  Steep price declines followed. Oil, which sold for $110 a barrel in 2014, slumped to a low of $26 per barrel earlier this year. It recovered somewhat this spring with prices mostly in the range of $45-$50 in recent months.

OPEC nations, led by Saudi Arabia, have been willing to absorb the financial impact of plummeting oil prices in order to preserve market share and hurt competitors with higher productions costs, such as U.S. shale producers.

OPEC also accounts for a smaller share of global production that in the past, when the cartel dominated the marketplace. Total OPEC production is nearly 37 million barrels a day while non-OPEC production is nearly 57 million barrels daily, according to Global Risk Insights.

Read more

The end of OPEC?

Comments (0) Africa, Business, Featured

opec meeting

OPEC’s refusal to impose production limits and an evolving global marketplace signal diminished clout for the oil cartel.

When OPEC ministers once again failed to agree on production limits to bolster oil prices in early June, it was yet another signal that the days of the oil cartel’s dominance in the global marketplace are over.

Members of the Organization of Petroleum Exporting Countries may continue to be important players in world oil markets, but “the cartel has lost its privileged ability to control global oil prices,” according to Global Risk Insights, which assesses political and business risk around the world.

OPEC nations, led by Saudi Arabia, traditionally have been the world’s swing oil producers, with enough reserves and daily production to control the price of oil. But that has changed in recent years as the United States, Russia and other smaller non-OPEC countries increased production.

Non-OPEC production rises

Total OPEC production is nearly 37 million barrels a day compared to non-OPEC production of nearly 57 million barrels daily, according to Global Risk Insights.

Despite waning influence, OPEC’s refusal to set production limits has played a major role in creating an oil glut, precipitating a two-year crisis that has seen the price of oil drop to as low as $26 per barrel earlier this year before climbing to $52 this month. That compares to prices of about $110 per barrel in 2014, when the crisis began.

Some OPEC nations, led by Saudi Arabia, have been willing to absorb the financial shocks of plummeting oil prices in order to preserve market share, reasoning that the low prices would drive competitors, notably U.S. shale oil producers, out of business.

OPEC has rebuffed calls to limit production by members Algeria and Venezuela, which have been hard hit by the slump.

Saudis take a financial hit

Saudi Arabia itself has not been immune to the financial impact of low oil prices.

The Gulf nation has spent more than $150 billion of its reserves in less than two years and posted a deficit of $98 billion last year.

Earlier this year, the Saudis borrowed $10 billion from a consortium of international banks, its first foreign debt in 25 years. The government also was considering asking creditors to take IOUs because it cannot pay its bills.

Oil rig at Bakken Formation

Oil rig at Bakken Formation

The OPEC strategy to let oil prices fall in order to wound its competitors has had mixed results, especially in the United States.

While 59 shale oil companies in the U.S. have filed for bankruptcy, production has dropped only slightly because of more efficient production. While financially troubled, the U.S. shale production should be able to rebound quickly once oil prices start rising, perhaps as early as next year.

Deal with Russia falls through

OPEC also came under fire from a top Russian oil executive in the spring, after a proposed deal between OPEC and Russia to freeze output fell through.

Igor Sechin, an ally of President Vladimir Putin, said tensions between Saudi Arabia and fellow OPEC member Iran have undermined the oil cartel. Saudi Arabia and Iran are vying for political dominance in the Middle East, and Iran, freed from Western economic sanctions, has vowed to significantly increase its oil exports.

“At the moment a number of objective factors exclude the possibility for any cartels to dictate their will to the market,’’ Sechin said. “As for OPEC, it has practically stopped existing as a united organization.”

Saudis pledge economic reform

Meanwhile, the Saudis have pledged sweeping economic reforms that signal their intention to go their own way on oil prices.

The reforms aim to diversify the country’s oil-dependent economy by increasing non-oil revenue to $141 billion by 2020. However, Saudi Arabia said it would maintain its output of 12.5 million barrels per day until 2020.

Deputy Crown Prince Mohammed bin Salman said his hope was that in 20 years the country would no longer be oil-dependent. The Saudi kingdom relies on oil for 80% of its revenue.

Saudi Arabia has vast oil reserves and has modernized production at a time when other oil producers including Venezuela and Iran have let their industries deteriorate.

At the OPEC meeting in early June, the Saudi oil minister also alluded to the waning clout of the cartel, saying that the market would determine prices.

“I think managing in the traditional way that we tried in the past may never come again,” Khalid al-Falih. Oil producers should “let the market forces continue to seek and find that equilibrium price between supply and demand.”

Read more

OPEC fails to agree policy but Saudis pledge no shocks

Comments (0) Business, Latest Updates from Reuters, Middle East

VIENNA (Reuters) – Saudi Arabia promised on Thursday not to flood the oil market with extra barrels even as OPEC failed to agree on output policy, with Iran insisting on the right to raise production steeply.

Tensions between the Sunni-led kingdom and the Shi’ite Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years.

Tensions were less acute on Thursday as Saudi Arabia’s new energy minister, Khalid al-Falih, showed Riyadh wanted to be more conciliatory and OPEC decided unanimously to appoint Nigeria’s Mohammed Barkindo as the group’s new secretary-general.

Several OPEC sources said Saudi Arabia and its Gulf allies had tried to propose a new collective ceiling in an attempt to repair OPEC’s waning importance and end a market-share battle that has sapped prices and cut investment.

But OPEC sources said the organisation had failed to agree on output policy and set a new ceiling.

Despite the setback, Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer, already pumping near record highs, to raise production further to punish rivals and gain additional market share.

“We will be very gentle in our approach and make sure we don’t shock the market in any way,” Falih told reporters.

“There is no reason to expect that Saudi Arabia is going to go on a flooding campaign,” Falih said when asked whether Saudi Arabia could add more barrels to the market.

The market has grown increasingly used to OPEC clashes over the past two years as political foes Riyadh and Tehran fight proxy wars in Syria and Yemen.

Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilising oil markets – in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.

Tehran has been the main stumbling block for the Organization of the Petroleum Exporting Countries to agree on output policy over the past year as the country boosted supplies despite calls from other members for a production freeze.

Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear programme.

Iranian Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual country production quotas.

“Without country quotas, OPEC cannot control anything,” Zanganeh told reporters. He insisted Tehran deserved a quota – based on historic output levels – of 14.5 percent of OPEC’s overall production.

OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd – well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.



That “OPEC could not agree on a relatively benign deal which would have been constructive for price is a sign that political differences are undermining the organisation”, said Gary Ross, founder of U.S.-based PIRA consultancy.

“It is bearish short-term for oil prices. But what is also important is that Saudis are not planning to flood the market and want higher prices,” he added.

Falih was the first OPEC minister to arrive in Vienna this week, signalling he takes the organisation seriously despite fears among fellow members that Riyadh is no longer keen to have OPEC set output.

“There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” Falih told Argus Media ahead of the meeting.

At its previous meeting in December 2015, OPEC effectively allowed its 13 members to pump at will.

As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages.

Until December 2015, OPEC had a ceiling of 30 million bpd – in place since December 2011, although it effectively abandoned individual production quotas years ago.

For a Take-a-Look on Reuters stories on OPEC, click on


(By Reem Shamseddine, Rania El Gamal and Alex Lawler. Additional reporting by ⁠⁠⁠⁠Shadia Nasralla⁠⁠⁠⁠⁠; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)


Read more

Libya joins Iran in snubbing oil freeze

Comments (0) Business, Latest Updates from Reuters, Middle East

LONDON (Reuters) – Libya does not plan to attend an April 17 meeting of oil producers about freezing supply to support prices, a Libyan OPEC delegate said on Tuesday, joining fellow OPEC member Iran in snubbing the initiative.

The absence of the two OPEC members would limit the impact of any freeze by producers from the Organization of the Petroleum Exporting Countries along with Russia, even though Libya’s output has been curtailed for many months by unrest and the chance of it increasing production swiftly is low.

“We are not going,” the Libyan delegate said, referring to the meeting in Doha next month. “Clearly, they have to allow us to go back to our production when the security situation in the country improves.”

Libya has made its wish to return to pre-conflict oil production rates clear since four countries reached a preliminary deal on freezing output in February.

Other producers understand this, the delegate said. “They appreciate the situation we are in.”

Qatar, which has been organising the meeting, has invited all 13 OPEC members and major outside producers. The talks are expected to widen February’s initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC Russia.

The initiative has supported a rally in oil prices, which were about $41 a barrel on Tuesday, up from a 12-year low near $27 in January, despite doubts over whether the deal is enough to tackle excess supply in the market.

Iran has yet to say whether it will attend the meeting. But Iranian officials have made clear Tehran will not freeze output as it wants to raise exports following the lifting of Western sanctions in January.

The potential volume Libya and Iran could add to the market is significant. But conflict in Libya has slowed output to around 400,000 barrels per day since 2014, a fraction of the 1.6 million bpd it pumped before the 2011 civil war.

Iran produced about 2.9 million bpd in January and officials are talking about adding a further 500,000 bpd to exports. So far though, Iran has sold only modest volumes to Europe after sanctions were removed.


(By Alex Lawler. Editing by David Clarke)

Read more

UAE moves to quash talk of OPEC emergency meet as oil slumps

Comments (0) Business, Latest Updates from Reuters, Middle East

ABU DHABI (Reuters) – The United Arab Emirates moved to quash talk of a potential emergency meeting of the Organization of the Petroleum Exporting Countries (OPEC) after Nigeria’s oil minister said on Tuesday a “couple” of members had requested a gathering.

Benchmark Brent crude futures slipped towards $30 a barrel to a near 12-year low before rising slightly. They have shed almost three-quarters of their value since mid-2014.

Such market conditions supported an emergency meeting to review whether OPEC should change strategy, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told reporters on the sidelines of an energy conference in Abu Dhabi.

However, UAE Energy Minister Suhail bin Mohammed al-Mazroui later told the same conference the current OPEC strategy was working, adding that time was needed to allow this to happen — perhaps between one and 1-1/2 years.

“I’m not convinced OPEC alone can change or can solely unilaterally change this strategy just because we have seen a low in the market,” Mazroui said.

Mazroui added that while the first half of 2016 would be “tough” for the oil market, there would be a gradual recovery later in the year, aided by an expected drop in non-OPEC production.

Indeed, OPEC has no plan to hold an emergency meeting to discuss the drop in oil prices before its next scheduled gathering in June, two OPEC delegates said on Tuesday.

OPEC’s strategy of maintaining production levels, instead of reducing supply to allow prices to recover, has been aimed at defending market share at the expense of higher-cost producers such as those in the U.S. shale sector.

The supply glut is likely to be exacerbated in 2016 by the return of Iranian supply to the market, once Western sanctions have been lifted.

“I think all the members including Iran have the right to increase their production. I don’t think we are going to restrict anyone,” Mazroui said.

Such prospects have led oil analysts to downgrade their forecasts in recent days, with Standard Chartered saying prices could drop to $10 a barrel.

The likelihood of a meeting taking place will hinge on the attitude of OPEC heavyweight Saudi Arabia, which has been at the vanguard of resistance to a production cut.

“Saudi Arabia‎ has never held the position that it does not want to talk,” Kachikwu said. “In fact, it was very supportive of a meeting before June, at the time when we held the December meeting, if (there was a) consensus call for it.”


(By Rania El Gamal and Maha El Dahan. Writing by David French; Editing by Jason Neely and Dale Hudson)

Read more

OPEC Rejects Oil Production Limits Despite Falling Prices

Comments (0) Business, Featured, Middle East

OPEC Meeting

In spite of growing climate concerns and plummeting oil prices, the world’s largest oil cartel has rejected limits on pumping crude oil in the coming year.

The move by the Organization of Oil Producing Countries (OPEC) virtually guarantees a continuing glut of oil along with low prices at the gas pump. Low prices could further undercut U.S. production shale oil production in 2016.

Meeting December 4, 2015 in Vienna, Austria, representatives of OPEC’s 13 member countries debated whether to cut crude production, currently about 31.5 million barrels a day, in an attempt to prop up prices.

Growth in demand is cited

In a statement following the meeting, OPEC acknowledged the oversupply but emphasized potential growth in demand next year.
“ The Conference observed that global economic growth is currently at 3.1% in 2015 and is forecast to expand by 3.4% next year. In terms of supply and demand, it was noted that non-OPEC supply is expected to contract in 2016, while global demand is anticipated to expand again by 1.3 mb/d (million barrels per day),” the OPEC statement said.

OPEC ministers divided

The failure to impose limits followed a fractious discussion within OPEC. The Vienna meeting, scheduled to last four hours, was extended to seven as members debated whether to continue a year-old policy of oversupply.

The prevailing faction, led by Saudi Arabia, the cartel’s largest producer, wants to pump at current levels despite the risk of even more price reductions. Other members, such as Venezuela and Algeria, want to cut production in an attempt to bolster prices.

OPEC member countries produce about 40 percent of the world’s crude oil and their exports represent about 60 percent of the total oil traded internationally, which has enabled the cartel to influence oil prices, according to the U.S. Energy Information Administration.

That was evident as the U.S. benchmark rate for oil declined 2.7 percent to $39.99 a barrel on the day of the OPEC meeting.

Action could undermine U.S. producers

Saudi Arabia says it wants to protect its market share. But some analysts say Saudi Arabia wants to pump more oil in order to slow down shale oil production in the United States, leaving OPEC producers to fill the vacuum as demand grows. Shale oil is significantly more expensive to produce so these producers are even harder hit by lower prices.

A U.S. slowdown is already happening. According to Baker Hughes North American Rig Count for the week of December 4, 2015, there were 737 active rigs in the United States compared to 1,920 rigs a year earlier.

Oil production may increase

Meanwhile, OPEC production is likely to increase beyond the current 31.5 billion barrels a day.

In Vienna, Iran said it would double production to 4 million barrels a day, the amount it was producing before international sanctions were imposed. Iran’s production dropped sharply in 2012 as a result of the sanctions, which are being lifted as a result of the Iran nuclear deal. Iraqi oil production also has increased to about 4 million barrels a day.

A new reality for OPEC

The decision to keep pumping underscored the cartel’s weakened ability to collectively sway prices.

“Effectively, it’s ceilingless,” Iranian Oil Minister Bijan Namdar Zangaeh said. “Everyone does whatever they want.”

Iraqi Oil Minister Adel Abdul Mahdi noted that other producers do not operate with production limits. “Americans don’t have any ceiling. Russians don’t have any ceiling. Why should OPEC have a ceiling?”

Historically, OPEC has been able to bolster prices by squeezing production. But in November 2014, Saudi Arabia blocked calls from poorer OPEC members to cut production in hopes of halting the slide in prices. At that time, the price of oil was slightly more than $71 per barrel.

“It is a new world for OPEC because they simply cannot manage the market anymore. It is now the market’s turn to dictate prices and they will certainly go lower,” Dr. Gary Ross, chief executive of PIRA Energy Group, said at the time.

Indonesia rejoins OPEC

OPEC also welcomed the re-entry of Indonesia into the cartel after a six-year absence. The country is the fourth smallest producer of OPEC’s 13 members.

A net importer of oil that also exports, Indonesia rejoined OPEC hoping to gain greater access to crude oil supplies.

Climate change concerns

While declining to set limits on crude production, the OPEC ministers did discuss the United Nations Climate Change Conference that was ongoing in Paris at the same time.

The discussions “stressed that climate change, environmental protection and sustainable development are a major concern for all of us,” the OPEC statement said.

Efforts to reduce carbon emissions could place large oil producers in even more of a bind if governments in the climate talks move to reduce dependence on oil in favor of sustainable energy sources.

Read more