Many OPEC members say the cartel may have to call an emergency meeting production and prices because of the damage the collapse of oil prices has been doing to their countries’ economies. But the prospects of such a gathering seem remote.
Diezani Alison-Madueke, Nigeria’s oil minister who now holds OPEC’s rotating presidency, told the Financial Times, “Almost all OPEC countries, except perhaps the Arab bloc, are very uncomfortable.”
This discomfort comes just three months after OPEC’s last meeting, in November, in which, under Saudi pressure, the group decided to ignore the drop in oil prices, as well as the pleas of less-wealthy members, and maintain a production ceiling of 30 million barrels per day that has been in place for three years.
It eventually emerged that the strategy, evidently conceived by Saudi Oil Minister Ali al-Naimi, was to abandon OPEC’s traditional approach of lowering production to keep prices high, and instead to defend market share against oil producers such as Americans using newer, if more expensive, means of extraction such as hydraulic fracturing, or fracking. (Related: OPEC Production Cut May Not Be Needed After All)
In January, al-Naimi told the Middle East Economic Survey that his aim was to drive oil prices low enough that such “inefficient” production methods would cease to be profitable. But while that approach is having some success, it does little for the budgets of many OPEC members.
Particularly vulnerable OPEC members are Venezuela and Iran, who pressed OPEC’s leadership for a production cut before the November meeting and have since publicly campaigned for action to shore up oil prices.
Alison-Madueke told the FT that if the price of oil slips below its current $60 per barrel, “it is highly likely that I will have to call an extraordinary meeting of OPEC in the next six weeks or so.” She said she’d been discussing the possibility with other members of the group. She added that she hoped, but couldn’t be certain, that the price of oil could stabilize at its current $60.
Yet a meeting seems unlikely, if for no other reason that it must have the approval of all 12 member states, and Saudi Arabia is certain to veto such an idea, even if the price of oil drops to $20. It probably will be joined in opposition by other Persian Gulf members that already are wealthy enough to weather an extended period of low oil prices, even if they have to adjust their budgets. (Related: Shale Rivals OPEC As Swing Producer)
Another reason: Saudi Arabia and probably all other OPEC members are aware that if production is cut and prices rise, US oil producers would fire up the rigs they shut down recently when fracking became unprofitable and resume production that could only feed the existing global glut in crude.
Finally, there’s the possibility that Alison-Madueke’s comments on an emergency meeting were motivated primarily by domestic politics in Nigeria. A higher price for oil would help the country, Africa’s largest crude producer, because normally it provides the government with about 80 percent of its revenues.
Yet at the same time, Nigeria’s presidential elections have been postponed from Feb. 14 to March 28 in an effort to prevent disruption from the terrorist group Boko Haram. As a result, Oliver Jakob, an oil analyst at the oil newsletter Petromatrix in Zug, Switzerland, concluded, “[I]t is difficult not to discount [Alison-Madueke’s] statement as playing to the domestic audience.”
And one anonymous OPEC delegate told Reuters that while Alison-Madueke is addressing Nigeria’s electorate, “there are no concrete actions going on to organize any emergency meetings of OPEC countries.”
By Andy Tully of Oilprice.com
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