Doha: the unanswered questions

From a market perspective, yesterday’s non-event in Doha does not warrant the label “disaster”, although for headline writers the alliteration is compelling. Bathos is nearer is the mark.

A production freeze by countries that in any event could not sustain more barrels a day was only ever going to put a floor under prices, and a sunken floor at that. Russian oil minister Alexander Novak said beforehand that a Doha deal could keep prices in the low $40s/bl and bring forward a market rebalancing that is already under way. The IEA noted last week that a freeze would have little effect on physical supply.

So, this morning Brent lost well over $2/bl on the open to trade around the $40.50/bl mark but by mid-morning London time it had bobbed back up to $42/bl, probably finding some support from the strike in Kuwait. Apparently, the Kuwait oil workers trade union is able to limit production and influence prices even if the government won’t.

But it’s the wider context of the breakdown in Doha that is more important than the front-month futures contract being a dollar up or a dollar down.

A Doha deal was first and foremost to be a confidence-building exercise.  A delegate at the original meeting in Qatar in February said then of the freeze plan: “If it is sufficient to create a better psyche for the market, and the market stabilises and improves, fine. If not, at least we have a good level of trust among us.” A freeze would be a building block for future co-operation.

Some 18 countries turned up to Doha, the majority of them expecting to sign a deal. Some 18 countries went into the closed session with a draft of that deal. It fell apart and they left with nothing more than the customary agreement to meet again. Some confidence-building exercise.

The failure leaves egg on the face of Venezuela’s embattled president, Nicolas Maduro, who had invested a lot of domestic credibility in projecting Caracas as a player on the international stage capable of rescuing the oil price. The stakes were not so high for Moscow — Doha was not on the lips of the man on the Moscow omnibus — but Novak was on the record as expecting a deal, had lobbied other countries to come along, and had put his government’s name to something that has ended up a shambles. State-controlled Rosneft put it succinctly: “Russia has demonstrated loyalty towards [its] market partners, something that many had doubts about — ability and willingness to agree. But the fact that they [Opec] cannot agree among them is beyond our influence.”

Qatar is used to being buffeted by the stormy relations of its near neighbours but, as host nation and current holder of the Opec presidency, its government may very well feel slighted.

Iran has been entirely consistent in saying it would not freeze until it had regained pre-sanctions production. The draft provided for an October review of progress, a potential milestone for tempting Tehran to compromise. But the Saudi delegation insisted there could be no deal without Iranian participation from the start.

And here is the really corrosive aspect of yesterday’s farce. Since Ali Naimi became oil minister, Saudi Arabia’s oil policy has been marked by pragmatism and a separation from politics. In a period when Vienna meetings had been a bear pit of regional and political rivalries, he famously said that Opec conferences should be like the meetings of a central bank.

Whatever the answers, the questions left hanging are these:

  • Is it credible that Naimi sponsored the Doha process only to pull the rug under the feet of participants on the day of the meeting?
  • Are economic issues or politics driving Riyadh’s insistence on the unachievable?
  • Have the senior echelons of Saudi Arabia’s oil industry signed up to the current policy direction?

If politics rather than economics are to drive Saudi oil policy, concern will extend beyond the oil markets.

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