No cuts, no ceilings, but new secretary general is elected – OPEC
The biannual OPEC meeting in Vienna today has come and gone, but OPEC’s policy of defending market share remains. Reports indicated earlier in the week that the group might reinstate a production ceiling, a feature of OPEC that the cartel did away with in December 2015, but it appears that even this did not come to pass.
OPEC did announce the appointment of a new secretary general, however. Two delegates to the group said Nigerian candidate Mohammed Barkindo was picked to replace Libya’s Abdalla Salem el-Badri, reports CNBC.
During the meeting, el-Badri said for the first time in many months there was a “very positive” atmosphere among the cartel’s members. The former secretary general said he was pleased with the way the oil marketing is recovering, with oil prices now hovering near $50 per barrel.
Both WTI and Brent crude oils were down over 1% following the news that OPEC’s policy remained unchanged, however. WTI was trading at $48.28 as of 11:10 a.m. EST, while Brent traded at $49.06 per barrel.
OPEC’s de facto leader trying to mend fences, but poorer members still suffering
OPEC’s largest producer and de facto leader, Saudi Arabia, appointed Khalid al-Falih as its new oil minister last month as the kingdom begins to refocus on domestic policy. While attending his first OPEC meeting as Saudi Arabia’s oil minister, it appeared that al-Falih was focused on calming members’ fears about recent comments by Saudi Deputy Crown Prince Mohammed bin Salman, who said the kingdom could easily raise production, reports New York Times.
“The Saudis are optimizing for a world in which prices go through big swings,” said Robert McNally, a former White House energy adviser who is now the president of Rapidan Group, referring to the kingdoms recent announcement that it will retool its economy away from oil dependency, “Yet they want to retain some sense of stability provided by OPEC.”
McNally said those two objectives were “completely contradictory” and that “boom and bust cycles” were the likely outcome “when there is no one balancing the markets.”
OPEC’s poorer members continue to suffer as oil prices remain well below the breakevens required to balance budgets though, despite el-Badri’s feeling that the group’s outlook was positive.
“We chose a new secretary general — that’s pretty good,” the Venezuelan oil minister, Eulogio Del Pino, said sarcastically.
Venezuela sold $1.7 billion in gold reserves in the first quarter of the year as it struggles to pay back debt amid a financial crisis. To balance its budget, Venezuela would need to sell oil for $121 per barrel, more than twice the current price. Inflation is expected to hit 481% by the end of 2016 and 1,642% next year as the country searches for a way to stabilize its economy, in which roughly 95% of export revenues come from crude oil.
Potential for a new ceiling still exists
While OPEC did not agree to a production ceiling in today’s meeting reports from DNB Bank suggest that new production targets may still be in the works. A report from DNB today said “key consultancies are now reporting that Saudi is lobbying for a new, undistributed production target of either 32.0 or 32.5 (MMBOPD).”
The new production targets would be roughly 2 MMBOPD higher than the production cap OPEC scraped in December 2015, but would do little to help rebalance fundamentals. Based on OPEC’s May number’s, the group produced 32.44 MMBOPD, meaning there would not be a production cut initially.
It remains to be seen how added Iranian barrels might factor into this new production cap, though. Iran hopes to reach 4 MMBOPD, and based on Saudi Arabia’s refusal to join a production freeze in April, it remains unclear if the kingdom will be open to allowing more Iranian barrels to enter the market, or if it and other members will take oil off the market to accommodate Iran’s production.
