Today’s meeting in Vienna did not begin in the most auspicious circumstances, and according to some observers, risks ending up as yet another blunder, driving oil prices down further. Goldman Sachs, for example, gives the possibility of a successful deal a 30% chance. Morgan Stanley, on the other hand, has ignored the skepticism of many and bets a deal is likely. OPEC for its part is no stranger to last-minute miracles, and it can rely on the tireless work of diplomats over the past few weeks to reach a deal.
To begin today’s meeting, President of the OPEC Conference and Qatar’s minister of energy Mohammed Bin Saleh Al-Sada addressed the audience: "Over the past two months, this Committee has done some excellent work. The meetings it has undertaken have been extremely constructive, providing us all with a better appreciation and understanding of the various viewpoints among OPEC and non-OPEC producers." Since the Algiers accord was signed on 28 September, "we have also seen extensive bilateral and multilateral consultations, across countries and continents, and between Ministers, as well as Heads of State."
Price per barrel: in 2008 it was 140 dollars
One certainty is how the price of crude went down 3% yesterday, while today it’s up 1% at 45.5 dollars. Analysts predict that in the absence of a deal it could go down as much as 6%. The goal of today’s meeting is to assign percentages for each individual country’s output cuts, all under the umbrella of a preliminary deal made months ago in Algiers, providing for cutting 1 million bpd from global output. This 2-3% reduction of global output should make crude tradeable at 50 dollars per barrel. Of course this scenario is still far from the 140 dollars per barrel that enriched countries and producers in 2008. From there it slumped to 120 dollars in 2015 and today’s 45 dollars.
The Algiers accord is a first step. The outlook is to 2040
The Algiers accord, stressed Al-Sada, "was effective in arresting any further deterioration in prices and also helped reduce relative volatility," with the price per barrel going up to 45 dollars before dropping to 41 in recent days. In his speech this morning, the president stated, "This year we expect non-OPEC oil supply to contract by 800,000 barrels a day, compared to growth of 1.5 million barrels a day in 2015. And in 2017, we only see a small growth in non-OPEC supply of 200,000 barrels a day. World oil demand is expected to grow at healthy levels of around 1.2 million barrels a day in both 2016 and 2017. In addition, global economic growth forecasts remain reasonable for both 2016 and 2017, at 2.9% and 3.1%, respectively." Al-Sada then called it "vital" that "stock levels start to fall... once this overhang starts falling on a regular basis then prices start to rise and more stability will return to the market."
Furthermore, the President of the OPEC Conference identified two factors as key: "Firstly, this remains a growth business, with oil demand in OPEC’s 2016 World Oil Outlook reaching over 109 million barrels of oil a day by 2040, a healthy increase of over 16 million barrels a day. And secondly, this growth will require significant investments in the upstream, midstream and downstream. Overall, estimated oil-related investment requirements are close to $10 trillion in the period to 2040." However, in order to meet these targets, oil producers will have to come through the current impasse and stabilize prices and the market.
But positions differ sharply
Hopes aside, the situation remains prickly: in recent days, perhaps catching wind of a possible failure of the meeting, OPEC itself – through the Saudis – has opted for a two-phase agreement. The first phase would be an agreement among OPEC member governments (which would already be a major step forward), to be followed later by one with non-OPEC producers. The strategy itself illustrates the complexity of the agreement sought in Vienna. And reconciling diverging positions is no easy task, considering how after months of record output, Russia has announced itself willing to freeze production at current levels, but not to reduce them. Iraq is wobbling as well, while Libya and Nigeria have been outspoken against the agreement, since they need revenues from crude exports to rebuild their respective state apparatus. Indonesia, finally, is also skeptical, having recently announced itself undecided on whether or not to sign any final agreement.