The actions and intentions of Saudi Arabia and Russia—the two largest oil-producing nations attending the Doha meeting on April 17 — have dashed all hopes of any fruitful outcome. The most important meeting of the last three decades, which has promised to forge new friendships and a new cartel, is turning out to be the biggest farce, even before the curtain is raised.
All of this undermines the efforts of the smaller nations, which were hopeful of a production freeze from the meeting.
Instead, we’re looking at Russia, whose oil production is now at a 30-year high after the nation produced 10.91 million barrels per day (bpd) in March, according to Reuters. In fact, these output figures are second only to the record 11.47 million bpd Russia produced in 1987.
Saudi Arabia is also firmly back on its non-committal path, saying that it will go along with the production freeze if everyone else does, including Iran—of which there is no chance. Saudi Arabia’s deputy crown prince Mohammed bin Salman on 1 April told Bloomberg: “If all countries agree to freeze production, we’re ready. If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.”
According to a report by Helima Croft, global head of commodity strategy at RBC Capital markets, the five nations shown on the chart below are at the maximum risk of a major crisis due to lower oil prices.
The chart shows the oil price levels required by respective nations to survive. “Our ‘fragile five’ states…were already facing severe political and security challenges when oil prices were above $100/bbl and the situation has grown far more grim as these countries have struggled to fund their state apparatuses and provide essential services,” the Financial Post quoted Croft as saying.
While oil ministers from Venezuela, Nigeria and other smaller producers have said that they are still hopeful that an agreement will be reached in Doha, Ecuador’s Oil Minister has gone a step ahead; he plans to meet his counterparts in Mexico and Columbia to extract a commitment from them to support the production freeze.
Similarly, Kuwait’s OPEC governor Nawal Al-Fuzaia not only expects an agreement, but she has also predicted that Brent crude is likely to rise to $45 to $60 per barrel (b), in the second half of the year and remain in that range until 2018.
Compare the above statements from the smaller nations, which are pro-production freeze, to the larger producers who actually matter. The difference in the approach to the meeting is very visible.
In a five-hour long Bloomberg interview, Saudi Prince Salman said, “If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers decide to freeze production, we will be among them,” emphasizing that Iran had to be part of the agreement.
He went on to say, “I don’t believe that the decline in oil prices poses a threat to us, for us it’s a free market that is governed by supply and demand and this is how we deal with the market.”
Iranian Oil Minister Bijan Zanganeh countered by rubbishing the idea of Iran agreeing to a production freeze. Iran, he said, will continue to increase production and exports until it achieves pre-sanction output levels, as reported by semi-official Mehr news agency.
Considering that five OPEC nations are on the brink of a disaster and Iran and Saudi Arabia are at each other’s throats, it looks like we will not have an OPEC anymore by the time this oil crisis ends.
While Saudi Arabia and Iran are still commenting against the production freeze, Russia has sprung into action and increased production to a 30-year high. Forget reaching an agreement—if the meeting ends without a squabble, all the members should be happy.
The recent announcements from Saudi Arabia outlining the plan to create a $2 trillion fund to reduce dependency on oil and reports of austerity plans indicate that the Kingdom is not taking the Doha meeting seriously. It also seems to be sending a message to the others that it will not buckle under any sort of pressure, and it is readying its Plan B.
The Doha meeting will turn out to be a total disaster and the sentiment will be further damaged if the participating members don’t release a common statement. Forget about the production freeze. Listen carefully, Bears can be heard sharpening their claws ahead of the meeting.