Opec splits prevent supply deal with other producers in Vienna

The expert committee will meet again in Vienna on 25 November ahead of the next meeting of Opec ministers on 30 November, to ‘finalise individual quotas’

Opec had agreed last month in Algiers to reduce their production of crude oil to a range of 32.50 million to 33 million barrels per day. Photo: Bloomberg
Opec had agreed last month in Algiers to reduce their production of crude oil to a range of 32.50 million to 33 million barrels per day. Photo: Bloomberg

London/Muscow: Opec’s internal disagreements over how to implement supply cuts prevented a deal to secure the cooperation of other major suppliers after two days of talks in Vienna.

Nations including Russia and Kazakhstan ended talks at the headquarters of the Organization of Petroleum Exporting Countries (Opec) on Saturday without making any crude-supply commitments, said Brazil’s oil and gas secretary Marcio Felix.

The producers will meet again for discussions on 25-26 November and the outcome of the process hinges on Iran and Iraq, said Azerbaijan’s energy minister Natiq Aliyev.

A deal with other crude producers wasn’t possible after internal Opec talks on Friday reached an impasse over the role of Iran and Iraq, both of which want to be exempt from any cuts. While non-member Oman said Saturday it was willing to cooperate in a supply deal, it couldn’t commit to a specific output cut until Opec had its own agreement.

Oil-producing nations need to continue dialog and “come up with real numbers” before cuts can begin, Kazakhstan’s Deputy Energy Minister Magzum Mirzagaliyev said after the meeting.

Opec’s surprise agreement in Algiers last month to make the first supply cuts in eight years will only make a serious dent in a record oil surplus if producers outside the group join in. While the accord helped push oil prices to a 15-month high above $50 a barrel earlier this month, they have subsequently fallen as several members disputed the production estimates that would determine the size of cuts. Failure to implement the output reduction agreed last month in Algiers will hurt oil producers, the organization’s top official warned.

Risk of failure

Opec agreed on 28 September to reduce output to a range of 32.5 million to 33 million barrels a day, compared with about 33.4 million in September. None of the countries that attended Friday’s meeting specified how much they are willing to cut, said one delegate, who asked not to be identified because the meeting was private. Still, progress was made on the methodology to be used for allocating individual production curbs, the delegate said.

“Anything short of implementation of this accord could lead to the elongation of the rebalancing process, with further deterioration of financial conditions and setbacks in investments extending into a third year, which would be unprecedented,” Opec Secretary-General Mohammed Barkindo said at the start of Saturday’s meeting.

This is a critical time for the oil market, which is still under great pressure because of a large stockpile surplus, Barkindo said, according to a transcript of his speech posted on Opec’s website. The price recovery has already taken far too long and producers can’t risk delaying it further, he said.

Maximum commitment

“We should be calling for maximum commitment from all Opec and non-Opec countries” to the Algiers accord, Barkindo said.

Representatives of Azerbaijan, Brazil, Kazakhstan, Mexico, Oman and Russia attended Saturday’s meeting with officials from OPEC member states. Those countries collectively produced about 19.6 million barrels a day of oil last year, about 21 percent of global supply and equivalent to half of Opec’s output, according to BP Plc’s Statistical Review of World Energy.

Oman is willing to cut production as part of deal with other producers, but is waiting for Opec to reach an internal agreement before deciding on the size of its own supply reduction, said Ali al Riyami, the nation’s representative at the meeting in Vienna. The Middle Eastern nation pumped about 1 million barrels a day in May.

Rising production

Russia, the largest producer outside Opec, is already pumping at a post-Soviet record of about 11.1 million barrels a day. Prior to Saturday’s meeting, energy minister Alexander Novak indicated the country would prefer to freeze at this level as part of any deal, rather than make a cut.

Brazil attended the talks only as an observer, to listen to the other oil producers, Felix said before the meeting. The Latin American country will boost output by 290,000 barrels a day next year to 2.9 million a day, the biggest increase of any non-Opec nation, according to the International Energy Agency. Production will keep growing for the next few years, said Felix.

Kazakhstan also plans to boost output next year following the restart this month of the $50 billion Kashagan oil field after 16 years of development. The field is currently pumping about 100,000 barrels day, which should rise to 200,000 by year-end and 370,000 by the end of 2017, Italian oil company Eni SpA said Friday. The nation isn’t ready to join a freeze or cut, said Mirzagaliyev. Bloomberg

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