Oil Congress: what to expect from a new OPEC meeting

A meeting of energy Ministers of the OPEC countries, which will be held in the headquarters of the organization in Vienna on 2 June, can be called a landmark for many reasons. This is the first meeting all 13 participants of the cartel after the removal of Western sanctions against Iran and the announcement by Saudi Arabia of plans to carry out major reforms and to achieve the withdrawal from oil dependence. The main news that you expect from the meeting, — the name of the new Secretary General of the organization.

Freezing will not

In mid-April in the Qatari capital Doha of member countries of OPEC (except for Iran and Libya), and the largest outside the cartel, oil exporters (including Russia) had to negotiate a freezing of the level of oil production on the values of January 2016. But the agreement was signed and was not. The stumbling block was the refusal of Iran from the freezing of production before its release to the pre-sanctions level.

Judging by the comments of participants from this meeting OPEC decisions about the freezing too, should not wait. As stated by The Wall Street Journal the representative of Iraq in OPEC Falah al-Amri, no concrete proposals about the freezing of the level of oil production in the agenda no. This information publication confirmed by representatives of several member countries of the cartel. Among experts there is little doubt that the OPEC at the forthcoming summit should not wait setting restrictions on the extraction — such opinion was expressed by 27 of the 28 analysts surveyed by Bloomberg.

The freezing of the production level will not, because Saudi Arabia saw the first fruits of its strategy to increase production for squeezing competitors from the market, experts believe: in the United States were suspended ongoing projects and pending deadlines new, the debt burden of the largest Western oil companies increased by 30%, and engaged in the development of shale deposits is on the verge of bankruptcy.

Without concerted solutions

After the failure of negotiations in Doha, some analysts predicted a substantial drop in oil prices to $30-35 per barrel of Brent crude oil. But this did not happen — on the contrary, the price increase that began in January, continued. On the eve of the Doha meeting, on 15 April, a barrel of Brent oil cost $43,10, and may 31, the cost reached $49,83.

Countries such as Venezuela and Nigeria, which recently tried to force the cartel to achieve a more dramatic increase in oil prices, realized the futility of his efforts, the Director of the Center on global energy policy at Columbia University Jason Bordoff. In addition, the political confrontation between Riyadh and Tehran makes extremely difficult the adoption of any concerted decisions within OPEC, adds Daniel Ergin, the Deputy head of the consulting company IHS Inc. Against freezing and acts as the new head of the Saudi energy Minister Khalid al-falih — he is a greater enemy to the reduction of production level than his predecessor Ali al-Naimi, analysts say.

OPEC does not actually function as a cartel for the last five years, says the partner of company RusEnergy Michael Krutikhin. The organization has lost the ability to manipulate production volumes and exports: as soon as any of the OPEC countries cut production, its share in the market immediately is US or someone else from countries not members of the organization. The oil market in the current environment is not amenable to regulation nor OPEC, nor any one country, he said.

Russian energy Minister Alexander Novak at the meeting will not be present. But the day after the OPEC summit, the Russian Minister is scheduled to meet with Qatari counterpart Mohammed Ben Saleh al-Sadoy, which still acted as the main intermediary in the organization about the freezing of negotiations with Russia and Saudi Arabia.

The personnel issue

In conditions where the issue of restriction of production level is not necessary, the main intrigue of the summit of OPEC should be the appointment of the new Secretary General of the organization. Its current head, 76-year-old Abdullah al-Badri, had to leave his post in 2012, but cartel members were unable to agree on his successor. At the last OPEC meeting in December 2015 for a change of the General Secretary spoke of the countries that suffered most from the fall in oil prices, Venezuela, Ecuador, Algeria and Iran.

The main contenders for the post of Secretary General, three — the former head of the Nigerian national petroleum Corporation (NNPC) Mohammed Barkindo, the former head of Venezuelan state monopoly PDVSA, Ali Rodriguez, as well as Mahendra Siregar, the only representative in the cartel’s net oil importer — Indonesia. According to Reuters, more likely to lead OPEC in the Nigerian representative.

Despite the fact that the OPEC Secretary General has significant powers, it can significantly affect the market with their public statements. He was also to be required for the settlement of disputes within the cartel.