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OPEC abandoned all pretense this week of acting as a cartel.
It’s now every member for itself.
At a chaotic meeting Friday in Vienna that was expected to last
four hours but expanded to nearly seven, the Organization of
Petroleum Exporting Countries tossed aside the idea of limiting
production to control prices. Instead, it went all in for the
one-year-old Saudi Arabia-led policy of pumping, pumping,
pumping until rivals -- external, such as Russia and U.S. shale
drillers, as well as internal -- are squeezed out of market
share.
“Lots of people said that OPEC was dead; OPEC itself just
confirmed it,” Jamie Webster, a Washington-based oil analyst for
IHS Inc., said in Vienna.
OPEC has set a production target almost without interruption
since 1982, though member countries often ignored it and pumped
well above it. The ceiling of 30 million barrels a day, in place
since 2011 and now abandoned as too rigid, is no exception.
OPEC output has outstripped it for 18 consecutive months,
according to data compiled by Bloomberg. Now the organization
says it will keep pumping as much as it does now -- about 31.5
million barrels a day -- effectively endorsing limitless output.
The oversupply has sent the price of Brent, a global oil
benchmark, to a six-year low, triggering the worst slump in the
energy sector since the 2008 world financial crisis. It’s cut
the profits of major oil companies such as Exxon Mobil Corp. and
BP Plc in half while crude-rich countries such as Mexico and
Russia have watched their currencies plunge and their coffers
shrink.
On Friday, there was no talk of even setting a production target
that member countries could then disregard.
‘It’s Ceilingless’
“Effectively, it’s ceilingless,” said Iranian Oil Minister Bijan
Namdar Zanganeh. “Everyone does whatever they want.”
Emmanuel Ibe Kachikwu, the Nigerian minister, reinforced the
message, saying the market shouldn’t worry about the “semantics”
of targets or real production.
“We aren’t going to go back to a cartel and work against the
customers -- that time has passed,” said United Arab Emirates
Minister Suhail Al Mazrouei.
Most of the market “doesn’t have any ceiling,” Iraqi Oil
Minister Adel Abdul Mahdi told reporters. “Americans don’t have
any ceiling. Russians don’t have any ceiling. Why should OPEC
have a ceiling?”
The prospect of OPEC, which accounts for roughly 40 percent of
the world’s oil production, taking U.S. TV personality Sarah
Palin’s advice to “drill, baby, drill” sent crude prices further
downward. The U.S. benchmark dropped 5.7 percent between 8:14
a.m. and 9:06 a.m. New York time on Friday, hovering around $40
a barrel the rest of the session. On June 30, 2014, the price
was $105.37 a barrel.
The oversupply is likely to continue in the new year. Iran, for
years under sanctions related to its nuclear program, has
promised to lift its production to as much as 4 million barrels
a day by the end of 2016, up from about 3.3 million barrels a
day currently.
Acrimonious End
The meeting on Friday at times looked as if it might be headed
to an acrimonious end, similar to a gathering in June 2011 when
OPEC was unable to agree on policy and ministers openly attacked
each other. At the time, Saudi Arabian Oil Minister Ali al-Naimi
said he personally had had one of his “worst-ever” meetings.
No official would go that far to describe this conference, yet
when ministers and delegates left the OPEC building, near the
iconic Vienna State Opera house, they were speechless and grim.
Within an hour, some of the them, including representatives of
Saudi Arabia and Iran, were heading to the airport. Al-Naimi
said he was traveling to Paris to take part in climate-change
talks. Delegates from Venezuela, which pushed hard to cut the
old ceiling by about five percent, would only say OPEC “didn’t
decide anything,” a sign of the deep frustration with the new
policies in the cash-strapped South American country.
Officials nonetheless did their best to conceal any division.
Asked what arguments, if any, went on inside the small meeting
room where OPEC ministers seclude themselves without the
presence of aides, Iran’s Zanganeh simply said, “There were
discussions.”
That was most likely polite understatement, as Iran’s rival,
Saudi Arabia, carried the day. This time around, OPEC didn’t
look like the group that American diplomat Henry Kissinger once
described as able to blackmail national economies and whole
industries. Instead, it looked like they might have spent the
last few days bullying each other.
http://www.bloomberg.com/news/articles/2015-12-04/opec-unity- shattered-as-saudi-led-policy-leads-to-no-limits-ihs9xu51
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