Mounting anxiety ahead of OPEC meeting
There is mounting anxiety amongst the members of the Organisation of Petroleum Exporting Countries (OPEC) as they gather again in Vienna for its 169th meeting on June 2, 2016.
Part of the mounting anxiety for the OPEC members is the long overdue quest to choose a secretary-general to replace Abdalla El-Badri, whose term has been extended after members failed to agree on a successor. In recent months, three new hopefuls have emerged to try and break the impasse; Nigeria’s Mohammed Barkindo, Indonesia’s Mahendra Siregar and Venezuela’s Ali Rodriguez.
Led by Saudi Arabia, one of the founders, the oil cartel jettisoned their traditional role of managing supply for boosting output to snatch market share from higher-cost producers, thereby crashing prices in the process. There are signs that the strategy to squeeze out rivals is working but at huge cost to the cartel members which appears to be sounding the group’s death knell. The previous summit in December, for instance ended with public criticism of the Saudi position from Venezuela and Iran.
The oil cartel are unlikely to agree on curbing oil output due to increasing political differences among them participants and their desire to protect own interests. According to the International Monetary Fund, some member states are finding it difficult to balance their state budget going by their estimates for the price each member needs to balance its budget.
A recovery in global oil prices from 12-year lows to above $50 a barrel and rivalry between Saudi Arabia and Iran have dampened expectations that OPEC will rein in supplies at the forth-coming meeting. Saudi Arabia continues to insist that Iran, which only recently reappeared in the energy market after years of international sanctions, should be part of any production cuts. However, Iran is now aiming to increase oil production to the level that existed before the introduction of the embargo against the country.
Iraq has joined other Mideast rivals raising oil exports ahead of OPEC meeting aiming to supply 5 million barrels of extra crude to its partners in June. Iraq, which is the second-largest producer in the OPEC, had already been targeting record crude export volumes from southern terminals next month of 3.47 million barrels per day. Saudi Arabia, Kuwait, Iran and the United Arab Emirates, also plan to raise supplies in the third quarter.
While additional exports could make up for shrinking output and supply disruptions elsewhere, the new supplies also risk delaying a re-balancing of a global market still awash with oil.
OPEC’s fragile-5
The biggest causalities of the low crude oil price amongst the OPEC members are known as the “fragile-5”; Nigeria, Angola, Algeria, Libya and Venezuela.
Nigeria needs a crude oil price of about $104.49 per barrel to balance its budget. Its share of OPEC production is 5.1 percent. However, resurgence in militant attacks in Nigeria’s oil-producing region led by a new militant group, called the Niger Delta Avengers, cut output to the lowest in 30 years, helping buoy global prices.
Angola, another African member of the cartel needs a price of $93.14 per barrel to balance its budget. The country’s share of OPEC production is 5.4 percent. At the moment, Angola is seeking an IMF loan as state revenue plunges. Its over-reliance on strong oil prices left the country vulnerable to low oil prices.
Algeria tried, and failed, last year to organize a meeting of non-OPEC/OPEC members to push for output cuts, as years of declining crude production and low prices weighed on its fiscal deficit. With an OPEC production share of 3.3 percent, the country needs a price of about $87.6 per barrel to balance its budget.
Libya, which is OPEC’s smallest producer, needs a price of $195.2 per barrel to balance its budget. The country’s share of OPEC production is 0.9 percent. Competing administrations of Libya’s state-run National Oil Corp. in the east and west of the divided country contributed to the 80 percent output drop since the 2011 uprising that ousted Muammar Qaddafi.
Venezuela is one of the “fragile-5” OPEC members at most at risk from significant instability amid the turmoil in prices. The country, with a share of 7.4 percent of OPEC production, needs an oil price of $121.06 per barrel to balance its budget. Eulogio Del Pino, the country’s Energy Minister was one of the most ardent advocates of the failed production-freeze agreement.
FRANK UZUEGBUNAM