Saudi Arabia, Allies Willing to Cut Oil Production If Others Follow
Divisions emerge ahead of a contentious OPEC meeting on Friday
Saudi Arabia and its Persian Gulf allies are willing to pull back oil output as crude prices skidded further Wednesday but won’t cut unless other producers like Iran, Iraq and Russia join them, Gulf officials said.
“We cannot cut alone,” a Gulf official said ahead of the Organization of the Petroleum Exporting Countries meeting on Friday. “Everyone has to contribute to that—Iran, Iraq, and the rest outside OPEC.”
Asked if Saudi Arabia saw the need to curb supplies, the Gulf official said: “Absolutely.”
OPEC’s 168th meeting now promises to be a showdown between Saudi Arabia and Iran, two oil powerhouses that are rivals for political influence in the Middle East. Iran has called on Saudi Arabia to cut back its record levels of oil production as the Islamic Republic prepares to ramp up its own crude exports when western sanctions are lifted, as planned, next year.
OPEC is preparing for one of the most contentious meetings in its history a year after Saudi Arabia led OPEC on a new course of pumping more oil in the face of crashing prices. That was a historic departure for a cartel that produces a third of the world’s oil and had historically used its muscle to keep supply scarce enough to support desirable prices.
With American production reaching new highs, Saudi officials had said maintaining its market share was more important than supporting prices. It has pumped more than 10 million barrels a day for much of this year, a record that along with massive new flows from Iraq has OPEC pumping almost at capacity.
That has contributed to a situation in which global supplies of oil outpace demand by more than 1 million barrels on any given day. Prices have plummeted as a result, with the U.S. benchmark falling below $40 a barrel on Wednesday.
Iran showed little sign of agreeing to a cut.
“We’ve already reduced our production due to sanctions,” an Iranian official said, referring to the 1 million barrels a day of output the country lost after much of the western world imposed sanctions over the country’s nuclear program in 2012. The official said the Saudis profited from Iran’s loss. “The Saudis replaced us.”
Another Iranian official ratcheted up the rhetoric on Wednesday, accusing Saudi Arabia and its Persian Gulf Arab allies like Kuwait of opposing oil production cuts because of “international conditions” separating the two rival factions in the Middle East.
A majority of the OPEC wants to reduce the group’s crude oil production from current levels of more than 31 million barrels a day to spark a price recovery, said Mehdi Asali,Iran’s envoy to OPEC, according to Shana, the country’s oil ministry news agency. But OPEC decisions are made by consensus, meaning any opposition is tantamount to a veto.
Mr. Asali’s comments were the most dramatic example yet of the pressure on Saudi Arabia to cut oil production at Friday’s meeting. Mr. Asali wasn’t specific about what he meant by “international conditions,” but Saudi Arabia and Iran have long vied for power in the Middle East.
Currently, Saudi Arabia is leading a coalition fighting Iran-supported militants in Yemen and backs regime change in Syria over the objections of Iran, which supports PresidentBashar al-Assad.
OPEC members generally say politics and international affairs are separate from the economic matter of their oil, and it would be unusual for one member to suggest another was using oil as a weapon.
OPEC officials are planning an unusual meeting of state oil ministers on Thursday ahead of their planned gathering on Friday to decide on production levels. Saudi Arabia and Venezuela will attend and others are expected, officials said.
“It’s going to be a very tough meeting,” said one OPEC national delegate involved. “We need to thrash out our differences ahead of the official meeting.”
Iran and Saudi Arabia have agreed on coordinated production cuts in the past, as recently as the late 1990s when demand faltered during the Asian economic crisis. But they have had trouble coming together in more recent years.
In 2011, for instance, one of OPEC’s meetings produced no agreement at all when Saudi Arabia called for supply increases to moderate heating up prices. Saudi oil minister Ali al-Naimi walked out of that meeting and called it “one of the worst I ever had.” The discord caused prices to sink.
“We fear the meeting could collapse just like it did in June 2011,” one OPEC delegate in Vienna.
Similar tensions surfaced at a technical meeting Friday at the group’s headquarters. In an unprecedented sign of mistrust toward the cartel, Iraq, Iran, Venezuela, Ecuador and Algeria refused to endorse the group’s official estimates of demand for its oil early next year, according to people who attended the meeting.
Saudi Arabia is wary of cutting alone based on its experience dating back three decades. In the 1980s, Saudi Arabia cut output from more than 10 million barrels per day at the beginning of the decade to less than 2.5 million barrels in 1985-86. Others in OPEC and outside OPEC didn’t follow suit and prices fell into a yearslong slump, leading to 16 years of Saudi budget deficits that left the country deeply in debt.
Mr. Naimi said Tuesday that he would listen to OPEC members before deciding what to do.
The current strategy has shown some successes, with American production falling this year and OPEC gaining back some of its past share of the export market. But supplies from Russia, the world’s largest producer, are at record levels.
Source: WSJ – Saudi Arabia, Allies Willing to Cut Oil Production If Others Follow
