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Opec to keep oil flowing as price recovers

Thursday, June 2, 2016 - 16:31
02_06_2016 - AUSTRIA OPEC.jpg
Opec was expected Thursday to keep the oil gushing as a modest recovery in the crude price eases pressure on a cartel riven by Iranian-Saudi rivalry to cut output.

[VIENNA] Opec was expected Thursday to keep the oil gushing as a modest recovery in the crude price eases pressure on a cartel riven by Iranian-Saudi rivalry to cut output.

Traditionally the Organization of the Petroleum Exporting Countries, holding its bi-annual meeting in Vienna, has cut production to boost prices.

But in the most recent drop, which has seen oil tumble from over US$100 in 2014 to close to US$25 in January, Opec - driven by kingpin Saudi Arabia - has changed tack.

Experts say the 13-nation group has kept the oil flowing in order to squeeze competitors - particularly US shale oil producers - and retain market share.

After some time, the tactic now appears to be working.

Suhail al-Mazrouei, United Arab Emirates oil minister, described 2016 as "the year of correction" as he arrived in Vienna.

Non-Opec output is falling and prices last week briefly rose above US$50 for the first time in six months, although they have softened slightly since.

In early trading in Asia on Thursday, West Texas Intermediate (WTI) was down slightly at US$48.90, while Brent Crude - the other main contract - was up five cents at US$49.77.

Animosity between Saudi Arabia and Iran - bitter regional Opec rivals with frayed ties - means that any agreement to cut output is highly unlikely in any case.

Since Iran's 2015 nuclear deal entered into force in January and sanctions were lifted, Tehran has aggressively ramped up output, and is unwilling to stop now.

"A doubling of exports of Iranian oil has had no negative impact on the market and has been absorbed well," Iranian Oil Minister Bijan Zanganeh said Wednesday.

Arriving in Vienna later, Zanganeh said a production cap for Opec would be of "no benefit" to Tehran.

Iran stayed away from a disastrous meeting in Doha on April 17 between Opec and non-Opec members including Russia that failed to agree a possible coordinated output freeze.

Saudi Arabia meanwhile is undergoing change with the powerful young Deputy Crown Prince Mohammed bin Salman seeking to revamp the country's economy to reduce dependence on oil.

His "2030 Vision" includes a partial floatation of national oil giant Aramco and creating a gargantuan sovereign wealth fund.

On Wednesday upstart ridesharing company Uber said it has received a US$3.5-billion injection from Riyadh.

After the Doha debacle, the 30-year-old prince replaced veteran oil minister Ali al-Naimi with Khaled al-Falih, who is thought to be, if anything, less amenable to a cut.

This conflict between the Saudis and the Iranians could re-emerge if oil prices dip again, however, for example on the back of a stronger US dollar.

This worries poorer Opec members, not least Venezuela, where the economy is racked by severe food shortages and inflation projected to hit 700 percent in 2016.

Venezuela's oil minister said in Vienna that the recent recovery has been driven not by Opec's strategy but by one-off factors like wildfires in Canada and a strike in Kuwait.

"When those circumstances are removed, what is going to happen?," Eulogio del Pino said.

This is unlikely to sway the Saudis, however.

"We don't care about oil prices - US$30 or US$70, they are all the same to us," Prince Salman said in an interview with Bloomberg published in April.

One thing which could perhaps smooth the waters would be the appointment of a new Opec secretary general to replace the Libyan Abdalla El-Badri.

Candidates to succeed him include Ali Rodriguez Araque of Venezuela, Nigeria's Mohammed Barkindo and Mahendra Siregar of Indonesia, reports said.

AFP