OPEC holds quota at 30 mbpd, El-Badri stays on

We’ve been here before dear readers, we’ve been here before. Main headline at the conclusion of the 164th OPEC conference here in Vienna is a familiar one. OPEC’s production quota stays at 30 million barrels per day and Secretary General Abdalla Salem El-Badri – long overdue to step down – stays on in his post, as member nations torn between Iranian and Saudi tussles fail to agree on a candidate for the post. So at the end of it all a battle-weary El-Badri, took the stage as usual. Not entirely bereft of a sense of humour, the secretary general had a few quips, the odd joke, brushed off scribes pokes to say that the cartel had considered the global economic outlook which remains “uncertain with the fragility of the Euro-zone remaining a cause for concern.”

 

“We was also noted that, although world oil demand is forecast to increase during the year 2014, this will be more than offset by the projected increase in non-OPEC supply. Nevertheless, in the interest of maintaining market equilibrium, the OPEC decided to maintain the current production level of 30 million bpd.”

 

In taking this decision, OPEC said it had reconfirmed its members’ readiness to swiftly respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market.

 

El-Badri's tenure as Secretary General carries on for a period of one year, with effect from January 1, 2014. As the Oilholic noted in an earlier post, OPEC had a chance to send a message but missed a trick here. Despite the threat of incremental non-OPEC barrels, it failed to present a united front leaving El-Badri to carry the can in front of the world’s press and fly the OPEC flag.

 

The man himself though had a thing or two to say or avoid saying. Coming on the latter bit first, El-Badri declined comment on what increasing Iranian production would mean for the overall production quota. He also described incremental non-OPEC supply as "good for global consumers", acknowledged OPEC’s concerns about shale and said he was monitoring the supply side situation.

 

Yet later, he cut short an analyst’s question saying people should not “exaggerate” the impact of incremental or additional project barrels. “You keep going down this track and very soon you will see both prospective and thriving E&P jurisdictions lose their appetite for investing in new fields and enhancing existing facilities.” The Oilholic thinks the Secretary General has a point, albeit the point itself is a bit exaggerated.

 

One key theme to emerge was that OPEC members’ focus for exports was firmly to the East now. Several delegates and El-Badri himself acknowledged that supplies heading to the US – especially from Nigeria, Angola and Venezuela – were being diverted to far Eastern markets. The US it seems “wasn’t a priority” for OPEC in the first place; it’s even less so now. That's your lot from OPEC HQ! Keep reading, keep it ‘crude’!

 

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© Gaurav Sharma 2013. Photo: OPEC Secretary General Abdalla Salem El-Badri at the conclusion of 164th OPEC meeting of ministers in Vienna, Austria © Gaurav Sharma December 4, 2013.

The acknowledgement: OPEC flags-up US output

There should be no shock or horror – it was coming. Ahead of taking a decision on its production quota, president of the 164th OPEC conference Mustafa Jassim Mohammad Al-Shamali, who is also the deputy prime minister and minister of oil of Kuwait, openly acknowledged the uptick in US oil production here in Vienna.

 

“In the six months that have passed since the Conference met here in Vienna in May, we have seen an increasingly stable oil market, which is a reflection of the gradual recovery in the world economy. This positive development stems mainly from a healthy performance in the US, in addition to the Eurozone countries returning to growth,” Al-Shamali told reporters in his opening remarks.

 

It follows on from an acknowledgement by OPEC at its last summit in May about the impact of shale, which up and until then it hadn’t. But the latest statement was more candid and went further. “Non-OPEC oil supply is also expected to rise in 2014 by 1.2 million barrels per day (bpd). This will be mainly due to the anticipated growth in North America and Brazil,” Al-Shamali added.

 

You can add Canada and Russia to that mix as well even though the minister didn’t.

 

Turning to the wider market dynamics, Al-Shamali said that although the market had started to gradually emerge from the tough economic situation of the past few years, the pace of world economic growth remains slow. “Clearly, there are still many challenges to overcome.”

 

Finally, a few footnotes before the Oilholic takes your leave for the moment. Here is the BBC’s take why OPEC is losing control of oil prices due to US fracking – not entirely accurate but largely on the money. Meanwhile, Nigerian oil minister Diezani Alison-Madueke has just told Platts that her country supports OPEC’s current 30 million bpd crude output ceiling, at least for the next few months until the group's next meeting.

 

Alison-Madueke also said she was keen to see how OPEC saw the impact of the US shale oil and gas boom on itself. "We would like to see that we continue with volumes we have held for the last year or so at least between now and the next meeting. I think that would be a good thing. We would like to see a review of the situation referencing the shale oil and gas to see where we are at this stage as OPEC among other things."

 

Earlier, the Saudi oil minister Al-Naimi poured cold water over the idea of a production cut lest some people suggest that. He sounded decidedly cool on the subject at this morning's media scrum. So that’s three of the ministers saying the quota is likely to stay where it was. The Oilholic would say that removes all doubt. That's all from OPEC HQ for the moment folks, more from Vienna later as we gear up for an announcement! Keep reading, keep it ‘crude’! 

 

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© Gaurav Sharma 2013. Photo: OPEC media briefing room, Vienna, Austria © Gaurav Sharma 2013.

OPEC's politics is the main show, not the quota

The Oilholic finds himself in a decidedly chilly Vienna ahead of the 164th meeting of OPEC ministers. This blogger's correspondence on all crude matters from the lovely capital of Austria goes back a good few years and to the old OPEC HQ.

However, in all these years of journeying here from London, there has been one constant - nearly every leading financial newspaper one could pick up at Heathrow Airport carried a report about expectations from the ministers' meeting ahead of the actual event taking place. Yet this morning, most either didn't flag up the meeting or had a perfunctory brief on it. The FT not only omitted a report, but with eerie symmetry had a special report on the future of NAFTA containing an article on shale transforming North American fortunes!

There is clear sense of anti-climax here as far as the decision on the production quota goes. Analysts think OPEC will hold its quota at 30 million barrels per day (bpd), traders think so too, as do "informed sources", "sources close to sources", "sources of sources", etc, etc. Making it even more official, Algerian oil minister Youcef Yousfi has quite candidly told more than one scribe here today that quota fiddling was unlikely.

So why are we all here? Why for the sideshow of course! Silly you, for thinking it was anything but! Only thing is, cometh the meeting tomorrow - it's going to be one hell of a sideshow. Weaved into it is the Oilholic's own agenda of probing the hypothesis of the incremental barrel a bit further.

For not only are additional barrels available globally owing to a decline in US imports courtesy shale, Iraq - which hasn't had an OPEC quota since 1998 - is seeing a massive uptick in production. Additionally Iran, apart from being miffed with Iraq for pumping so much of the crude stuff, could itself be welcomed back to market meaningfully over the coming months, adding its barrels to that 'crude' global pool.

While that is likely to take another six months at the very least - the Iraqis are pumping on regardless. You wouldn't expect anything else, but it has made Iran's new oil minister Bijan Zanganeh come up with the crude quote of the month (ok, last month) when he noted: “Iraq has replaced Iran's oil with its own. This is not friendly at all." Yup, tsk, tsk not nice and so it goes with the Saudis, who pumped in overdrive mode when the Iranians were first hit by sanctions in 2012.

To put things into context, without even going on a tangent about Shia-Sunni Muslim politics in the Middle East, Iraqi production has risen to 3 million bpd on the back of increasing inward investment. On the other hand, Iran has seen stunted investment following US and EU sanctions with production falling from 3.7 million bpd to 2.7 million bpd as the move hit it hard in 2012. Even if the Iranians go into overdrive, reliable sources suggest they'd be hard pressed to cap 3.5 million bpd over the next 12 months.

As for the Saudis, they have always been in a different league vying with Russia (and now the US) for the merit badge of being the world's largest producer of the crude stuff. Meanwhile, the price of Brent stays at three figures around US$111-plus - not a problem for the doves such as Saudi Arabia, but not high enough for the hawks such as Venezuela.

The Oilholic seriously doubts if political problems will be ironed out at this meeting. But what's crucial here is that it could mark a start. Can OPEC unite to effectively manage the issue of both its and the global pool's incremental barrels in wake of shale and all that? Appointing a new secretary general to replace Libya's Abdalla Salem el-Badri would be a start.

El-Badri is long due to step down but has carried on as the Iranians and Saudis have tussled over whose preferred candidate should be his successor. The quota decision is not the main talking point here, this OPEC sideshow most certainly is, especially for supply-side analysts and students of geopolitics. That's all from OPEC HQ for the moment folks, more from Vienna later! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2013. Photo: OPEC flag © Gaurav Sharma 2013.