OPEC Transforming With Russia, Saudi Arabia As Major Conductors Of Oil Market Orchestra

OPEC Transforming With Russia, Saudi Arabia As Major Conductors of Oil Market Orchestra

The recently-struck agreement between the Organisation of the Petroleum Exporting Countries (OPEC) and other major oil producers to decrease crude output by 1.2 million barrels per day (mb/d) for the first six months of 2019 showcases transforming powers of Riyadh and Moscow as main conductors of the oil market orchestra, experts told Sputnik.

MOSCOW (Pakistan Point News / Sputnik - 11th December, 2018) The recently-struck agreement between the Organisation of the Petroleum Exporting Countries (OPEC) and other major oil producers to decrease crude output by 1.2 million barrels per day (mb/d) for the first six months of 2019 showcases transforming powers of Riyadh and Moscow as main conductors of the oil market orchestra, experts told Sputnik.

The decision was made in Vienna on Friday after a week of high-level talks between OPEC and non-OPEC oil producers. The meetings sought to determine the fate of the 2016 agreement on oil production curtailment in the face of weaker demand and higher-than-expected oil production, particularly in the United States.

Under the new deal, OPEC members pledged to cut oil production by 2.5 percent corresponding to 0.8 million barrels per day, while 10 non-OPEC countries agreed to decrease output by 2 percent or 0.4 million barrels per day from October 2018 levels. Moreover, Iran, Venezuela and Libya received exemptions from the deal due to sanctions and inner turmoil which involuntarily disrupted production levels.

SAUDI'S ROLL BACK IN PRODUCTION MAIN ISSUE

What preceded the 5th OPEC-non-OPEC Ministerial Meeting of two dozen countries was two-day internal consultations between members of the cartel on how to navigate challenges of excessive supply due to weaker demand, Qatar's surprise exit of OPEC and ways to persuade Venezuela and Iran into joining the deal when their output levels have been heavily hit by US sanctions.

Moreover, several countries, including Nigeria, declined to decrease oil production as it was mainly Saudi Arabia and Russia that have been raising output since June after the OPEC-non-OPEC decision to decrease compliance with production cuts down to 100 percent corresponding to a 1-million barrels per day increase in the overall production.

"OPEC internally has reached the conclusion that weak demand - and a higher expected US production - in 2019 requires OPEC+ to cut around 1.3 mb/d from October level. What that entails is a roll back by Saudi Arabia of its record November output," Ruba Husari, non-resident fellow at the middle East Institute (MEI), told Sputnik.

Nevertheless, Saudi Energy Minister Khalid al-Falih said his country would not cut oil production on its own to stabilize the market, signaling the difficult talks ahead to get every oil producer on board to decrease output beyond 2018.

Indeed, the meeting between OPEC on Thursday ended with no final figures on output decrease and was reconvened on early Friday to reach consensus before the non-OPEC countries were set to join them to approve the final decision.

As Iran proved to be too difficult to persuade into even nominal decrease in oil production, Russian Energy Minister Alexander Novak arrived early Friday for a series of bilateral meetings with his Saudi counterpart al-Falih and Iranian Oi Minister Bijan Zangeneh to showcase his diplomatic powers and roll over the Vienna deal on oil production curtailment.

Prior to the Vienna talks, Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman discussed cooperation within the OPEC-non-OPEC format during their meeting on the sidelines of the G20 summit in Argentina, where the two leaders agreed to extend the deal beyond 2018 without specifying the producing levels for the next year.

"It seems that after the G20 meeting in Argentina and particularly the rapport between MBS [Mohammed bin Salman] and Putin in addition to the ongoing discussions between Novak and Al-Falih illustrates that both Moscow and Riyadh will be coordinating on market price," Dr. Theodore Karasik, a senior adviser at Washington-based Gulf State Analytics, told Sputnik.

In the end, the fact that Russia agreed to cut not 150,000 barrels per day but 228,000 barrels per day and Riyadh pledged to lead the deal with a 500,000 bp/d cut from October levels in January showcased the leading power of the two nations in the Vienna agreement.

"OPEC is going through an existential transformation as Saudi Arabia and Russia together have become the major conductors of this (market) orchestra and where the others just follow suit," Husari argued.

OPEC and several non-OPEC oil producers, including Russia, reached a deal in Vienna in 2016, agreeing to cut oil output by a total of 1.8 million barrels per day in an effort to stabilize global oil prices. Non-OPEC states pledged to jointly reduce oil output by 558,000 barrels per day. The agreement, which came into effect in 2017, has been extended twice since then and is expected to remain in force until the end of 2018.