Skip to main content

Editorial comment

In an outcome rivalling the Earth’s orbit in terms of predictability, the OPEC meeting held on 2 June resulted in no change in policy; there will be no cap placed on oil production.


Register for a free trial »
Get started absolutely FREE in 2 minutes, no credit card required.


The main (and equally predictable) obstruction to any agreement appears to have been Iran’s refusal to do anything other than raise its output. The Islamic Republic is intent on returning to its pre-sanctions level of production, much to the chagrin of other OPEC members straining to balance national budgets with oil prices hovering in the high US$40s. According to Reuters, Iranian Oil Minister Bijan Zanganeh said that Tehran had no interest in supporting any kind of collective production ceiling, arguing instead for individual production quotas for each member, “Without country quotas, OPEC cannot control anything” he said. Zanganeh went on to insist that, going by historic levels, Tehran was due a quota of 14.5% of OPEC’s total production, some 4.7 million bpd (from a total 32.5 million bpd), well above the country’s current output of 3.5 - 3.8 million bpd.

Saudi Arabia, OPEC’s de facto leader, was represented by its new Oil Minister, Khalid Al-Falih, who struck a different tone by pledging that the kingdom would be “very gentle in [its] approach and make sure [it didn’t] shock the market in any way.” When asked whether Saudi Arabia would bring more oil to the market, he said “there is no reason to expect that Saudi Arabia is going to go on a flooding campaign.” Al-Falih also pointed to the recent rising oil price and added that Saudi Arabia was “satisfied with the price movement over the last few months and think[s] it will continue to gently edge up without much intervention, assuming that more or less OPEC production stays where it is.”1 In other words: no change of policy.

Whilst this most recent meeting has provided few surprises, what it has shown is that OPEC no longer appears to as much control over oil prices as it used to. Al-Falih’s comments would suggest that everything is going as planned, but in truth there’s nothing Saudi Arabia can do to stop Iran raising its output and driving prices down again. Indeed, as long as Iran refuses accept what it sees as Saudi attempts to control its output, and Saudi Arabia refuses to go ahead without Iranian agreement, the deadlock will likely continue. A cartel that can’t agree on output isn’t much of a cartel.

Elsewhere in the oil-producing world, residents are finally beginning to return to Fort McMurray in Alberta, Canada after a massive fire caused some 90 000 people to be evacuated, and brought production in the Athabasca oilsands to a standstill. Reports have shown that some 500 homes have been declared unfit for human habitation, meaning that roughly 9000 people will be unable to return in the near future. Canada’s total oil output was temporarily cut by almost 25% as a result of the fire, which gave a modest boost to oil prices. Production in the Athabasca oilsands is now gradually ramping up again.

However, as one source of disruption begins to ebb away, another emerges. Nigeria’s oil output, long subject to corruption and pipeline sabotage, has suffered a further blow at the hands of the militant group known as the Niger Delta Avengers. The group, which claims to represent the local people and the environment, has targeted facilities at Chevron’s Escravos terminal and damaged the main power line, which has caused all onshore activities to be shut down. This attack and others have cut Nigeria’s oil output to 1.4 million bpd, down from 2.2 million bpd. This cut in output has placed significant strain on the finances of the country, which generates 60 - 70% of its revenue from oil exports.

All of this goes to show that the oil industry is truly global - events and political decisions on one side of the world can affect output on the other. Oilfield Technology looks at operations and technology from around the world; this issue is no exception, with articles covering operations across five continents. Get in touch if you’d like to take part.

References

  1. ‘Saudi Arabia’s Gesture for OPEC Unity Meets Iran Resistance’ - http://www.bloomberg.com/news/articles/2016-06-02/saudi-arabia-s-gesture-for-opec-unity-meets-iranian-resistance

View profile