Goodnight Vienna

This Friday’s Opec meeting will be a dead rubber, won’t it? The Saudi pre-condition for a reduction in the group’s agreed production level remains cuts by non-Opec heavyweights and that’s not going to happen. Indeed, the pre-condition was put there precisely because it would not be fulfilled, to underline Riyadh’s contention that the likes of Russia and Mexico, let alone the US, are unwilling to share the burden of cutting world oil supply to match the level of demand.

The Russians have already said that oil minister Alexander Novak will not be talking about production levels when he pays his respects in Vienna. The Mexicans haven’t even considered the question worthy of addressing.

There may be grumbling within Opec that it’s all very well for the well-heeled Mideast Gulf Arabs to advocate defence of market share at the expense of prices while those with larger, poorer populations and lower oil reserves have to cut budgets. But for all of Algeria’s lobbying of other producers, the disgruntled will remain so.

In April, Iran called for a 5pc cut in the 30mn b/d Opec ceiling, to 28.5mn b/d. But this, like the Algerian demarche, was just for form. Tehran is focused on regaining the market share it has lost because of the sanctions that it hopes to see eased further when a definitive nuclear deal is done with the international powers. Oil minister Bijan Namdar Zanganeh says that exports can be boosted by 1mn b/d, almost back to 2011 levels, within months. That many admire his chutzpah but doubt his reservoir analysis is not the point – it’s a statement of intent.

So, we are set for a rollover that will keep the pressure on higher cost non-Opec producers. That’s pretty much the consensus. But US bank Morgan Stanley threw out a little teaser this morning, all the more delightful because it was just a throwaway comment on the front page of a report: “If anything, there is some risk the quota is moved higher given Opec is already producing 31+mn b/d”.

Now there’s a thought. And it’s not so hard to build a case for it. As Morgan Stanley says, Opec by its own admission is producing way above the 30mn b/d, so adjusting its agreed output to match reality would, arguably, give it more credibility. It would also be a pointed reinforcement of the market-share strategy, emphasising that it is indeed a strategy rather than a tactic. And it would probably turn the screw on non-Opec producers a little more, by dumping near-term prices.

And it would reassert Saudi Arabia as alpha male in the Opec pride. You can almost hear the spokesperson reading out the statement at the end of the meeting: “Noting its concerns over the fragile state of the world economy and the rapid decline in oil prices in the past year, the Conference concurred that stable oil prices — at a level which did not affect global economic growth but which, at the same time, allowed producers to receive a decent income and to invest to meet future demand — were vital for world economic wellbeing. Accordingly, in the interest of restoring market equilibrium, the Conference decided to raise the production level of 30mn b/d agreed in December 2011 to 31mn b/d. Goodnight Vienna”.

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