Hints From Oil Ministers Before OPEC’s Big Day
(Bloomberg Opinion) -- Friday is the big day for OPEC in Vienna, and Saturday will bring together OPEC and the non-OPEC producers that have joined it in oil production cuts for the last 18 months. While most of the news coverage focuses on whether OPEC decides to put more oil onto the market, some of the players have already dropped hints about broader issues on their minds.
I’ve spent the last two days in Vienna at the OPEC Seminar, a gathering of ministers, industry officials, financial analysts and some academics that is a prelude to the two big days. There were many interesting undercurrents to the deliberations. One striking change is that OPEC has internalized the lesson that, to operate effectively in the future, it will need to fully integrate, and ideally to expand the number of, non-OPEC producers in its ranks. From the Russians to the Azeris, these non-OPEC producers were well represented and accorded a warm welcome. Their flags and their ministers sat comfortably alongside those from OPEC stalwarts such as Saudi Arabia, Venezuela, and Iraq. Cooperation and inclusivity were the themes of the seminar, repeated at every opportunity.
And, although few ministers mentioned the U.S., Washington was in the room figuratively if not literally. The possibility of a trade war was clearly on the minds of many participants. Almost nothing else could so quickly stem the robust growth in oil demand that helped rebalance the oil market and upon which oil producers’ confidence rests.
There were multiple messages to the U.S. Not surprisingly, the Iranian oil minister railed against America and its reimposition of sanctions. Only slightly more subtle was the Venezuelan oil minister, who reminded his counterparts that any one of them could be in the situation of his country (presumably a reference to sanctions, rather than an illegitimate government and hyperinflation).
A notch more subtle was Saudi Energy Minister Khalid Al-Falih’s message that OPEC needed to focus on the consumer. "Our customers have spoken loudly, and we must listen to them,” he said. And a poll asking whether the Declaration of Cooperation (the agreement between OPEC and non-OPEC producers to cut production) had a positive effect on the oil industry was at least in part a reminder to American producers (several of which were represented at the seminar) that they too were the beneficiaries of the OPEC+ agreement.
Participants denied that the tweets of President Donald Trump would make their deliberations more difficult, but their protests were not entirely convincing. The big obstacle to a smooth agreement — and the source of much late-night drama — was the Iranian position, which vehemently opposed bringing more oil on line unless OPEC agreed to a statement that condemned U.S. sanctions on Iran. The assumption was that the Russians would bring the Iranians on board — and the lunch and dinner seating that kept the two delegations together was probably no coincidence. But, at least as of Friday morning, the Iranians wouldn’t budge, being only too aware that a deal of some sort was being made at their expense: The U.S. pulls out of the Iran nuclear deal and reinstates sanctions, but the global oil market is not rocked because the Saudis will put more oil on the market to neutralize any effects of that withdrawal.
Finally, although there was virtually no mention of it in the formal sessions, private conversations revealed that the pending “NOPEC” legislation before Congress was unsettling many. This raises the prospect of removing the sovereign immunity accorded to OPEC and opening it up to lawsuits in the U.S. under the Sherman Antitrust Act. It’s a complication that no OPEC country wants.
The world still needs to wait a bit longer to see whether OPEC manages to produce a consensus decision, what the contents of that decision will be, and how the markets will react both immediately and over the coming weeks and months. Once the fruits of Friday and Saturday’s negotiations are known, we’ll have some clue about whether the U.S. is using its global heft effectively. It is then when we see whether American public pressure on OPEC encouraged or discouraged an outcome in the interest of the U.S., broadly defined to include, but not be limited to, more oil on global markets.
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