At a chaotic meeting, Friday, in Vienna that was expected to last four hours but extended to nearly seven, the Organization of Petroleum Exporting Countries (OPEC) tossed aside the idea of limiting production to control prices. Instead, it went all in for the one-year-old Saudi Arabia-led policy of pumping, pumping, pumping until rivals, external, such as Russia and United States shale drillers, as well as internal, are squeezed out of market share.
OPEC has set a production target almost without interruption since 1982, though member countries often ignored it and pumped well above it. The ceiling of 30 million barrels a day, in place since 2011 and now abandoned as too rigid, is no exception.
OPEC output has outstripped it for 18 consecutive months, according to data compiled by Bloomberg. Now the organization says it will keep pumping as much as it does now, about 31.5 million barrels a day, effectively endorsing limitless output.
The oversupply has sent the price of Brent, a global oil benchmark, to a six-year low, triggering the worst slump in the energy sector since the 2008 world financial crisis. It’s cut the profits of major oil companies such as Exxon Mobil Corporation and BP Plc in half while crude-rich countries such as Mexico and Russia have watched their currencies plunge and their coffers shrink.
On Friday, there was no talk of even setting a production target that member countries could then disregard.
“Effectively, it’s ceilingless,” said Iranian Oil Minister Bijan Namdar Zanganeh. “Everyone does whatever they want.”
Minister of State for Petroleum, Emmanuel Ibe Kachikwu, on his part, reinforced the message, saying the market shouldn’t worry about the “semantics” of targets or real production.
“We aren’t going to go back to a cartel and work against the customers, that time has passed,” said United Arab Emirates Minister Suhail Al Mazrouei.
Most of the market “doesn’t have any ceiling,” Iraqi Oil Minister Adel Abdul Mahdi told reporters. “Americans don’t have any ceiling. Russians don’t have any ceiling. Why should OPEC have a ceiling?”
The prospect of OPEC, which accounts for roughly 40 percent of the world’s oil production, taking U.S. TV personality Sarah Palin’s advice to “drill, baby, drill” sent crude prices further downward. The U.S. benchmark dropped 5.7 percent between 8:14 a.m. and 9:06 a.m on Friday. On June 30, 2014, the price was $105.37 a barrel.
The oversupply is likely to continue in the New Year. Iran, for years under sanctions related to its nuclear programme, has promised to lift its production to as much as 4 million barrels a day by the end of 2016, up from about 3.3 million barrels a day currently.
“We hope an increase in oil-market demand, on one hand, and a dropping trend in production or drop in the increase in production, as seen and said by non-OPEC producers, will exert less pressure on prices,” Iran’s Zanganeh said, according to a report on Sunday by IRINN state TV.
OPEC will “continue its pivotal role in production and investment no matter how much prices fall,” Saudi Arabian Oil Minister Ali al-Naimi said in an interview with Al Eqtisadiah newspaper published Saturday.
The meeting on Friday at times looked as if it might be headed to an acrimonious end, similar to a gathering in June 2011 when OPEC was unable to agree on policy and ministers openly attacked each other.
No official would go that far to describe this conference, yet when ministers and delegates left the OPEC building, near the iconic Vienna State Opera house, they were speechless and grim.
Delegates from Venezuela who pushed hard to cut the old ceiling by about five percent would only say OPEC ‘didn’t decide anything,’ a sign of the deep frustration with the new policies in the cash-strapped South American country.
That was most likely polite understatement, as Iran’s rival, Saudi Arabia, carried the day. This time around, OPEC didn’t look like the group that American diplomat Henry Kissinger once described as able to blackmail national economies and whole industries. Instead, it looked like they might have spent the last few days bullying each other.
Bloomberg
