OPEC Calls for Widespread Production Cuts
The oil ministers of two powerful OPEC members, Saudi Arabia and the United Arab Emirates, say they had no choice but to avoid cutting production to shore up oil prices at their meeting last month because non-OPEC producers refused to do the same.
“The share of OPEC, as well as Saudi Arabia, in the global market has not changed for several years … while the production of other non-OPEC [countries] is rising constantly,” Saudi Oil Minister Ali al-Naimi said in an article published December 18 in the Saudi Press Agency (SPA).
“In a situation like this, it is difficult, if not impossible, for the kingdom or OPEC to take any action that may result in lower market share and higher quotas from others, at a time when it is difficult to control prices,” al-Naimi said.
The energy minister of the United Arab Emirates (UAE), Mohamed Faraj al-Mazrouei, agreed. Quoted by the UAE news agency WAM, he said: “No one likes the price drop, but it is not right that one party should interfere to fix the matter. [The party] responsible for the price fall [by causing the current oil glut] should contribute to fix the imbalance in the market.”
Al-Naimi represents the most productive and most influential state among OPEC’s 12 members, widely held as the most responsible for the cartel’s decision not to cut the group’s production from 30 million barrels per day during OPEC’s meeting in Vienna on November 17.
Al-Naimi’s comments show he has finally decided to give in to demands that he explain his decision, which ignored pleas for production cuts by poorer OPEC members such as Venezuela and Iran, which can’t weather lower oil prices for as long as wealthier Persian Gulf countries in the cartel.
Oil prices have been plummeting since mid-June, dropping by about 30% at the time of the meeting and now having fallen by more than 40%.
Shortly before the November meeting there was some evidence that OPEC may make a deal with oil producers outside the cartel to cut production jointly in order to reduce the oil glut and stabilize prices. Representatives of Mexico and Russia were in Vienna just before the OPEC session and spoke with al-Naimi.
After his meeting with the Russians and Mexicans, however, al-Naimi said he was left with no expectations of any cooperation on production cuts by non-OPEC producers. “[T]hose efforts were not successful,” he told SPA.
In fact, Russia, the world’s second-largest oil exporter, after Saudi Arabia, said it was prepared to keep production at its current level even if the price of oil fell below $60 per barrel, $40 less than Moscow needs to balance its budget.
This isn’t the first time Moscow and OPEC have been at odds over oil production. In the early 2000s, during his first term as Russia’s president, Vladimir Putin had promised to join OPEC in a cut in output. Instead, he not only reneged, but raised his country’s exports instead.
Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.