Opec and non-Opec oil producers failed to reach agreement on a production freeze on Sunday because Saudi Arabia insisted that Iran had to be part of any agreement.
All other countries were willing to tolerate leaving Tehran free to regain market share lost under the nuclear sanctions. However, the world’s leading crude producer is at odds with Iran in Syria and Yemen and Saudi energy minister Ali Al Naimi took umbrage that his opposite across the Arabian Gulf, Bijan Namdar Zangeneh, did not even show up at the meeting held in Doha.
Qatar had been pushing hard for an agreement because its natural gas prices are linked to crude and product levels and it has been experiencing a double-whammy on routed oil prices.
The Russian oil minister Alexander Novak tried very hard to persuade Mr Al Naimi to agree to the freeze, but Prince Mohammed bin Salman, Saudi Arabia’s deputy crown prince, had already stressed that Saudi Arabia would not sign up to anything that excluded Iran.
Prices took a big hit yesterday, but Brent had been up by 60 per cent from the January low to the recent US$45 per barrel high. The promise of the talks was a factor, but probably not so influential as recently reduced volumes in the world petroleum market.
Despite Iran’s return to the market, there has actually been a big cut in the total volume of Opec oil. Production fell by about 200,000 bpd in February and remained roughly the same last month, according to independent estimates by the Opec Secretariat in Vienna. Crude available to the market may have fallen even more because Iraq has experienced serious loading difficulties at Basra, where rough March weather and berth maintenance trebled loading waits for a queue of tankers.
The disruption of 700,000 bpd of Kurdish and Kirkuk crude in February combined with sabotage in Nigeria and other interruptions may have taken as much as 1 million bpd out of the market temporarily.
Abu Dhabi has also helped tighten the market by carrying out maintenance in Adco fields onshore. This reduced UAE production by about 125,000 bpd in February and another 200,000 or so last month, according to the secretariat’s Monthly Oil Market Report (MOMR).
The MOMR estimated Iranian production to be up by 400,000 bpd last month compared with the fourth quarter of last year. Yet the Opec supply disruptions more than offset this and a 170,000 bpd unexpected rise in non-Opec production. The Opec shortfall is what really underpinned the improved price levels.
Iran took advantage of the tightening market in the first two weeks of this month to boost exports from 1.4 million bpd to more than 2 million bpd, according to Geneva tanker trackers. It could be that news of this surge in Iranian shipments more than anything scuppered any Doha accord.
The question now is what will happen when the disrupted volumes return to the market. Iraqi Kurdistan is back on stream and Iraq’s southern loadings are restored to 3.6 million bpd, according to Alwan Marine, an Iraqi group based in Sharjah and Basra.
The other big question is whether Saudi Arabia and Kuwait will seek to press new volumes into the market because they and several other Opec members had tacitly been observing a freeze this year by holding production level.
Yet if prices do go back to $30 per barrel it may be no bad thing for Opec, because then April would be the cruellest month for US shale producers. They have been hanging on to the cliff edge by their fingertips, hoping for $45-50 oil, which would permit them to put on futures hedges and start drilling and fracking again. Instead their bankers, who cheered on a price recovery that would rescue their clients, will now have no choice but to roll them up into bankruptcy after the standard April credit reviews.
Source: The National