This week’s deliberations in Vienna have not done a lot for the near-term oil price — front month Brent is well under $52/bl today, less than 5pc higher than it was one year ago when a production cut was just a twinkle in the eye of the harder-pressed Opec members.
Yet, ministers left Vienna with smiles that were cheery rather than fixed. Today’s price doesn’t matter, the point is that the market will be in balance by the end of the year, they said. It’s a fair point and it would be churlish to point out that the top end of the price range a number of them said they expect is a modest $60/bl. So I won’t.
The nine month roll over of current cuts had a powerful lobby behind it – Opec kingpin Saudi Arabia and non-Opec behemoth Russia. Pre-Vienna trips — including Saudi Arabia’s Khalid al-Falih’s last minute trip to Baghdad — stiffened the resolve of waverers.
Fundamentals meant that the ministers had little room for manoeuvre and the self-congratulations were making a virtue out of necessity. The calculations showed that six more months of cuts were needed to drive stocks down to the five year average, and an additional three were needed to prevent what would have been an immediate rebuild as 1.7mn b/d of crude came back during a period of seasonally low demand.
But the choreography and the presentation of the deal had a little extra something for everyone.
Saudi Arabia and Russia hold the presidency of the Opec and non-Opec alliance, so they got to parade themselves as the big hitters who control the game. Indeed, at one point they even rolled up in the same limo.
Nigeria and Libya not only got continued exemption from cuts but al-Falih went out of his way to say they are under no pressure to make a contribution. Iran also gets to carry on regardless.
Algeria’s proposal to institutionalise the Opec and non-Opec co-operation was accepted, so its image as oil diplomacy wizard was burnished (although that’s more than can be said for the image of Noureddine Boutarfa who arrived as minister but was sacked as the meeting took place).
Venezuela too got a nod towards it efforts. Al-Falih acknowledged that the option of deeper cuts had been discussed.
Non-Opec Kazakhstan had said beforehand that it might not be able to continue with its token 20,000 b/d cut. The lobby prevailed but Astana hinted that things could be reviewed at the next ministerial meeting in November. In fact, individual country reviews are not going to happen then, but let’s not get picky.
And, last but not least, Equatorial Guinea gets to join Opec. Why a minor crude producer with declining output and a burgeoning LNG industry wants to sign up is still a bit of a mystery. But oil minister Gabriel Mbaga Obiang looked happy enough.