It took oil ministers five hours behind closed doors at OPEC headquarters last Friday in Vienna and they had a full 48 hours beforehand at the OPEC International Seminar held at the grand Hofsburg Imperial Palace, but they cobbled together a deal that is still lacking in clarity.
OPEC and non-OPEC ministers from 24 countries are party to a pact signed a year and half ago that nearly came unglued due to a sharp rise in prices to $80 barrel and tensions between Middle East archrivals Saudi Arabia and Iran.
That deal pulled 1.8 million barrels a day off the market to mop up a record surplus of crude which led oil to below $30 a barrel in January 2016. Today’s problem is the opposite, a perceived shortage of supplies. Countries like Venezuela, Libya and Angola have been unable to produce enough crude to hit their quotas and the group involuntarily removed 2.8 million barrels off the market and prices soared.
Facing pressure from the big oil importers of the world, the US, India and China, Khalid Al-Falih, the minister of energy from OPEC’s largest producer Saudi Arabia, took matters into his own hands.
But faced with criticism that the Kingdom and Russia were steamrolling decisions past the other 22 countries, he treaded carefully to appease his peers but made his intentions clear.
“I will be sensitive to them, but at the end of the day I think our first and foremost responsibility is to our consumers and the market,” said Al-Falih in an interview I conducted on stage at the seminar.
To remove an iota of any doubt, he added, “One thing you can be assured of, we will be responsive and we will release supplies so that no shortage will materialize.”
Many on the ground suggested that Saudi Arabia was being too responsive to the White House and a series of tweets coming from US President Donald Trump over the past couple of months putting OPEC at the crosshairs.
Ministers on the ground told me the US President was voicing his concern because gas prices surged past $4 a gallon ahead of mid-term elections in November
Even before ministers could make their way out of OPEC HQ last Friday, he fired another salvo on social media.
“Hope OPEC will increase output substantially. Need to keep prices down!” Trump declared.
“Substantially” was left open for interpretation, even for ministers who were present in the closed-door proceedings. Before the meeting began on Friday, I asked Al-Falih what we could expect and he talked about a “nominal” 1 million barrels a day of new crude on the market; nominal because of all the 24 producers, only a quarter have the capacity to pump more oil.
So as the meeting concluded, the ministers of both Nigeria and Iraq told CNN the increase would amount to about 600-770 thousand barrels a day. As the news broke on-air that the increase would be less than expected, the market rallied by $4-5 dollars a barrel.
Even Iran, which fought to go back to the original targets signed at the end of 2016, walked out with the same impression.
“I think it is acceptable and rational. It is legal because we have a valid resolution until the end of December (2018). We have agreed to comply 100 percent with the previous and valid resolution that we have,” said Bijan Zaganeh, minister of petroleum for Iran.
If prices surge again, with Iran’s production likely to fall due to US sanctions, players such as Saudi Arabia and Russia can open the taps in September and release more crude.
John Defterios
The reality was a bit different. As a disciplined but steadfast negotiator, Minister Al-Falih did not want to let the 18-month agreement fall apart and send a signal of disunity to the financial markets. So, he did what ever it took to keep regional archrival Iran on board while still trying to answer the calls from the US, India and China.
“It was deliberate ambiguity,” said Helima Croft, global head of commodity strategy at RBC Capital Markets, who was in Vienna following the discord.
In an organization that has allocated production for each country to the very last barrel, there was a great deal left open for interpretation.
But in the end, it may serve the interests of the oil producers and consumers. If prices stay below $80, President Trump may hold off more social media barbs. After all, US oil companies, big and small, are producing a record of nearly 11 million barrels a day and today’s price helps support that investment.
If prices surge again, with Iran’s production likely to fall due to US sanctions, players such as Saudi Arabia and Russia can open the taps in September and release more crude.
The de-facto leaders of the deal are being ambiguous, but the option was likely a messy divorce.
- John Defterios is CNNMoney Emerging Markets Editor and Anchor, based in the network’s Abu Dhabi bureau. Twitter: @JDefteriosCNN