Saudi Arabia’s Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak are said to be heading to Qatar later this week for an unscheduled meeting, according to industry sources quoted by Reuters. The Gas Exporting Countries Forum (GECF) is meeting in Doha, and though OPEC’s de factor leader Saudi Arabia is not a member of the gas forum, OPEC’s Algeria, Iran, Libya, Nigeria, Qatar, the UAE, and Venezuela are.
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According to Reuters sources who had spoken on the condition of anonymity, the Saudi minister was expected to meet other OPEC ministers, and maybe Russia’s Novak, this coming Friday.
Some may see this as a good opportunity for the Saudis to take stock of where some OPEC producers and Russia stand on the issue of possible freezes/cuts in production, although most members, including Iraq and Iran, have been pretty vocal about where they stand. The meeting—an unscheduled one —is likely a sign that things are not progressing as planned, and more discussions are required to reach some consensus.
The Saudis - OPEC’s biggest producer - who have so often been the ones to cut, said just yesterday that this time around, they will not cut unless there is collective action. According to OPEC sources, Saudi Arabia has said which conditions need to be met so that a deal could go through—and those terms are strict, which is probably telling of the kingdom’s bond sale that went through last month, giving them a bit more of a lifeline than they had before the borrowing.
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Still, its hardline stance, which was probably never meant to be publicized at this point and could be interpreted as some type of ultimatum, is a bit puzzling given that Saudi Arabia just announced it cut $266 billion in projects—clearly it is feeling the weight of low oil prices.
The Saudi terms are: collective action, each producer sharing the burden of the cuts equitably, transparent production figures used for determining the starting point of a cut/freeze, i.e. figures as reported by OPEC, and expectations that Iraq would cut production.
So is Iran feeling the crunch to the same degree as Saudi Arabia? Is Iraq? We know Venezuela is, and Angola can’t afford toilet paper for its state-run oil firm employees, but Angola and Venezuela really don’t hold the same sway with production volumes being significantly less than Saudi Arabia, Iran, and Iraq.
This week’s meetings on the sidelines of the Doha forum could be another informal round of talks for Falih as the Saudi minister tries to push the kingdom’s agenda and bring the other OPEC members around to the importance of a freeze. Just how important Iran and Iraq see this freeze will likely determine the fate of the OPEC deal, if one is to be had.
Although it’s not clear if Falih would meet his Iranian counterpart Bijan Zanganeh - and it’s not even clear yet if Zanganeh would attend in person – the Saudi minister might have plenty of opportunities to discuss the possible deal, not only with fellow OPEC producers, but with Russia as well, who has publicly agreed to a cut, if and only if OPEC members reach a consensus. And while Russia is said to be on board give those conditions, they do not appear to be in the dire straits that many of the OPEC members find themselves in.
Al-Falih has a tough road ahead indeed, given that Iran is ramping up output, and Iraq is pleading for an exemption because it is fighting Islamic State. As if this was not enough for a deal-breaker, Iraq and Iran are disputing OPEC figures and are self-reporting higher numbers. On top of that, there’s non-OPEC Russia, which has said that it could join efforts to stabilize markets, yet like OPEC, is showing no signs of stopping, and continues to increase its oil output.
With November 30 just two weeks away, reports of diplomatic efforts to clinch some kind of a feasible deal are creating some volatility in the oil markets.
According to Tamas Varga, oil analyst at London brokerage PVM Oil Associates, as quoted by Reuters, said: “Reports of a diplomatic push by OPEC to strike a deal are supporting the markets. The rally could last a little while but the underlying fundamental picture is still bearish.”
This was originally published by Oilprice.com.