OPEC States Push for Output Cuts in Face of Saudi Opposition
by Javier Blas/Nayla Razzouk/Wael Mahdi
Cash-strapped OPEC nations from Venezuela to Iran are piling pressure on Saudi Arabia to reduce oil output, yet the group’s biggest producer remains opposed to a cut unless countries outside the organization join the effort.
A year after Saudi Arabia spearheaded OPEC’s decision to maintain production amid slumping prices, the group is grappling with crude near a six-year low as supply swamps demand. Venezuela and Ecuador want OPEC to agree to output curbs on Friday when members meet in Vienna, while Iran says the group must cut to accommodate an increase in its own output next year.
The strengthening protest against the Organization of Petroleum Exporting Countries’ production policy contrasts with the mild criticism from members at the group’s last summit in June. This time, the continued decline in prices has prompted less-wealthy states to clamor for change, with officials from Venezuela meeting with Ecuador, Algeria, Iraq and Iran on Thursday to rally support for cuts.
“The OPEC member countries have lost so much money,” Iranian Oil Minister Bijan Namdar Zanganeh said after arriving in the Austrian capital. “It doesn’t seem that we can change the situation in the short term, it needs a long-term strategy.”
OPEC’s annual revenue may fall to $550 billion from an average of more than $1 trillion in the past five years, the International Energy Agency said Nov. 10. Faced with dismay among members unable to balance their books, de facto leader Saudi Arabia has adopted a conciliatory tone, promising to listen to all before a policy decision is made. Yet the country dismissed as “baseless” a report that it may propose an eventual 1 million-barrel-a-day cut.
OPEC pumped 32.1 million barrels a day in November, exceeding its 30 million-barrel target for an 18th month, according to a Bloomberg survey of companies and analysts. Iran plans to produce an additional 500,000 barrels a day once international sanctions over its nuclear program are lifted.
The country won’t accept any cuts that would bring its output below the pre-sanctions level of 4 million barrels a day, Zanganeh said Thursday. The nation has the right to boost its volumes and isn’t prepared to discuss an individual quota until its production is fully restored, he said.
Benchmark Brent crude closed on Wednesday at $42.49 a barrel, the lowest since 2009, when demand slumped during the global financial crisis. Futures traded at $43.52 as of 1:32 p.m. in London on Thursday. International oil traders including Vitol Group have said rising stockpiles will continue to weigh on the market and prices may not rally until 2017.
A year of low prices has widened the traditional OPEC divide between the haves and the have-nots. Saudi Arabia and allies Kuwait, the United Arab Emirates and Qatar have multibillion-dollar sovereign wealth finds that they can tap to counter the decline in oil revenue. Venezuela, Iran and Iraq don’t possess similar wealth, making them more vulnerable to the market slump.
Venezuela will propose a 5 percent production cut to OPEC, state newspaper Correo Del Orinoco reported, citing President Nicolas Maduro. Ecuador agrees with such a proposal and wants OPEC to comply with its collective output target, Hydrocarbons Minister Carlos Pareja said in an interview in Vienna.
“We need to reach an average of 30 million barrels a day; with this we will have a market reaction,” Pareja said. “We’re optimistic” about the outcome of Friday’s meeting.
OPEC ministers are expected to decide against cutting production at the summit, according to 30 analysts and traders surveyed by Bloomberg. While the majority of members would agree to a reduction, Saudi Arabia and other Persian Gulf Arab countries remain opposed, the Iranian oil ministry’s Shana news agency reported Wednesday.
Energy Intelligence reported on Thursday that Saudi Arabia may propose an eventual 1 million-barrel-a-day cut, conditional on the participation of non-OPEC producers including Russia. Such a reduction wouldn’t be agreed on Friday but could take effect in 2016, according to the report that was rebuffed by the Middle East nation.
No producers outside OPEC have given any indication they would agree to such an arrangement. Russian Energy Minister Alexander Novak said Thursday that the country doesn’t see a production cut as viable.
While Saudi Arabia has repeatedly said its policy of defending market share is working, it has also expressed willingness to cooperate with producers outside OPEC. Officials from the Arab state and Venezuela met with Russia and Mexico a year ago in Vienna but the summit failed to deliver any agreement on joint cuts.
Iran’s Zanganeh said OPEC shouldn’t wait for non-members to collaborate before reducing its own output.
“We are OPEC and it is not rational to hold our decision subject to the reaction of the non-OPEC producers,” the minister said.