OPEC oil-cut deal: All roads lead to Vienna

Vienna, Austria’s capital is regarded as ‘The City of Dreams’ because it was home to the world’s first psycho-analyst – Sigmund Freud. Tomorrow when the 14-member OPEC cartel meets in the ancient city, they will be hoping their dreams come true.

In September, OPEC members agreed to cut production to between 32.5 million and 33.0 million barrels per day – an effort to prop up prices – from the organization’s latest production estimates of 33.64 million bpd. They are meeting to agree on the specific number of oil barrels each member will cut.

The deal became a necessity when oil prices started climbing down from as high as $100 per barrel in 2014 to below $40 for most of this year flattening budget assumptions and contracting economies of oil producing nations.

For many OPEC countries, oil price recovery is a matter of economic survival. Nigeria’s economy sank deeper into recession last week when released third quarter Gross Domestic Product (GDP) figures show a slump of 2.24 per cent.

Renewed militancy and low oil prices have been blamed for the poor result as oil sector contribution of less than 22 per cent represents a decline relative to growth recorded in the third quarter 2015 at 1.06 per cent.

Iran, the group’s third-largest producer, emerging from bruising sanctions needs to ramp up production to about 4 million barrels per day to recover market share it lost. Iraq, battling Islamists fundamentalists ISIS needs the money to buy weapons and food hence has been the wild card since negotiations began.

Nicolas Maduro, Venezuela’s President is willing the outcome of the meeting to be positive he has dispatched his oil minister to Russia to help bring other producers on board. His country’s economy has collapsed and inflation is expected to top 1,600 per cent in 2017.

High optimism

The International Energy Association (IEA) in its November monthly oil report said that OPEC had increased production by 230,000 barrels per day last month to a record 33.83mn bpd. It warned that oil will maintain a supply surplus next year unless OPEC makes a production cut and forecasts growth of 500,000 bpd in 2017.

Realising that a supply glut was the main culprit of falling oil prices, OPEC is pushing members to implement the Algiers supply accord and boost oil prices. Shuttle diplomacy has been extended to countries like Iran, Iraq and Russia who though not an OPEC member nation has enough oil and outrage to bring the market to its knees.

Ibe Kachikwu, Nigeria’s minister of state for petroleum resources is confident that OPEC will reach an accord on production cuts the cartel holds its regular semi-annual meeting in Vienna, Austria tomorrow.

“I will rather say if there is a deal you may be looking at oil prices firming at $50. I’m not sure I am optimistic enough to say mid 50s yet, that could come with time. If we don’t sign a deal, the $44/45 you are seeing today will definitely be challenged,” he said in an interview monitored on Bloomberg Television.

He said oil prices will firm at $50/barrel for the rest of the year if a deal is reached and that Russia and some other non-OPEC countries will take a cue from a positive OPEC decision to cut production. But there are not enough seers in the world to know what Russia will do.

Analysts are also hopeful that a deal is reached and many forecasts have been positive.

“I am looking forward to the OPEC meeting next week in Vienna. We expect OPEC and non-OPEC oil producers will make a deal to bolster oil prices,” said Jason Schenker, a financial market expert at ‎Prestige Economics, LLC on his Twitter page.

Merrill Lynch Global research analysts predicts prices may briefly fall to sub-$40/bbl before gently recovering in a $40-45/bbl band if a deal is not reached but says that possibility is “least likely”.

Mohamed Barkindo, OPEC secretary general after a recent meeting in Tehran sounded optimistic a deal will be reached. Bijan Zangeneh, Iran’s oil minister said, “it is highly likely that oil and energy ministers of the member countries of the Organization of the Petroleum Exporting Countries will reach an agreement” on Nov 30.

Analysts say if producers manage to cooperate, oil prices could rebound to $55 to $60 a barrel, the level OPEC members deem appropriate for producers and consumers but with OPEC the world has learnt they can only hold their horses.

ISAAC ANYAOGU