Today’s special meeting of OPEC members and non-member oil producers failed to yield any progress on managing the global oil glut that has seen prices fall by more than 50% since last summer’s highs. In addition to the presence of OPEC oil ministers, representatives from non-member countries Russia, Mexico, Brazil, Colombia, and Kazakhstan were present. Norway, Azerbaijan and Oman were also invited, but chose not to attend.
Back To The Future
This special meeting was held at the behest of Venezuela, perhaps the OPEC member hardest hit by the global oil slump. The people of Venezuela are dealing with food shortages and blackouts on a regular basis, leading to riots and demonstrations against the government.
At the OPEC meeting in Vienna, Austria today, Venezuela’s oil minister urged a return to 1980s -style price setting, with member (and non-member) nations cutting production to bring prices up to $88 a barrel. Russia, which is in a worldwide fight with the Persian Gulf oil monarchies over market share, was dismissive of the proposal.
Infighting In OPEC
Saudi Arabia, OPEC’s largest member, has called the shots regarding the organization’s production policy since it was formed in 1960 in break the stranglehold international oil companies had over setting oil prices. Being Top Dog doesn’t mean everything is coming up roses, though. Fellow Persian Gulf oil producers have joined Russia in undercutting Saudi oil prices, especially in Asia. This led to Saudi Arabia being the only OPEC member to cut production in September, to 10.26 million barrels of oil a day.
Even though the Arab monarchies are in a much better position to weather the deliberate oversupply of crude, they are not immune to the side effects. The International Monetary Fund estimates that Saudi Arabia, Bahrain, and Oman will be bankrupt in the next five years, if oil prices remain low, and spending remains at present levels.
The oil sheiks are betting that high-expense competitors will have been driven out of business before then, and if some of the minor OPEC players like Venezuela are driven to ruin, it just means more market share for the survivors.
As today’s OPEC meeting illustrates, no one is willing to trust the others to cut production. Saudi Arabia is especially leery of being the first to cut production, having been back-stabbed by Hugo Chavez in Venezuela the last time OPEC tried to bring prices back up. Even if everyone in OPEC agreed to reduce production, it would be meaningless without Russia agreeing to go along with the idea. With military operations in both Ukraine and Syria to fund, and still feeling the bite from EU and US economic sanctions, Moscow is going to pump as much as possible to generate income in the immediate future.
Shale Squeeze Succeeding
OPEC blames skyrocketing US production from shale fracking for the latest collapse in oil prices, and the cartel’s current policy of flooding the market with cheap crude is primarily aimed at them. There are signs that US shale drillers are finally starting to crack under the pressure, although they’ve hung on far longer than the Arabs had expected.
It remains to be seen how long the Middle East oil producers can keep up the pressure on their competitors, but what is certain is that we will see a far different global oil industry after all is said and done.
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