OPEC ministers gather in Vienna Tuesday for crunch talks on a landmark pact curbing oil output, with Saudi Arabia and Russia hoping to persuade their peers to increase production again.
The upcoming June 22-23 meetings of OPEC and non-OPEC energy ministers are expected to be contentious, with several countries bristling at the thought of reversing a deal that has been in place for 18 months and helped lift oil prices to around $70 a barrel.
Resistance is being led by Iran, deeply wary of any move by regional rival Saudi Arabia that could push down oil prices at a time when Tehran faces renewed sanctions following US President Donald Trump’s decision to quit its international nuclear deal, which is likely to send the country’s oil exports plummeting.
Riyadh meanwhile, which cheered Washington’s exit from the nuclear deal, is under pressure from its US ally to boost output as Trump hopes to keep pump prices low ahead of November’s mid-term elections.
“You’re dealing with a very political situation,” analyst Amrita Sen of Energy Aspects told AFP.
The 14-nation OPEC cartel and its 10 non-member partner nations, including Russia, together account for more than 50 percent of the world’s oil supply, giving them huge sway over the global market.
The so-called OPEC+ group agreed a milestone deal to trim production from January 2017 by 1.8 million barrels a day to clear a global oil glut and shore up low prices.
The strategy paid off, with prices jumping from below $30 a barrel in early 2016 to around $70 in the second quarter of 2018.
The pact was meant to run until the end of this year.
But a collapse in oil production in crisis-hit Venezuela and the prospect of fresh Iranian sanctions have raised fears of a supply crunch, sending the price of crude spiking again.
As recently as April, Saudi Energy Minister Khaled al-Faleh had voiced support for the oil cut deal, saying the market had the capacity to absorb higher prices.
But Trump made it clear he disagrees.
“Oil prices are too high, OPEC is at it again. Not good!” he tweeted last week.
Observers believe Trump is dialling up the pressure on Riyadh because he wants to offset the expected drop in Iranian production.
“There’s definitively pressure from the US,” said Sen, adding that she believed Saudi had made a “commitment” to Washington in exchange for its abandonment of the Iran nuclear agreement.
In Russia meanwhile, private oil companies are finding it increasingly difficult to justify the cutbacks to shareholders eager to cash in on the higher prices.
For technical reasons, any decision to ramp up output also has to be timed not to coincide with Russia’s harsh winter, meaning the next OPEC meeting in November would come too late.
“They cannot as easily ramp up production during the winter,” said UBS commodity analyst Giovanni Staunovo.
SEB analyst Bjarne Schieldrop said Russia’s stance in favour of easing production curbs should also be seen against the backdrop of Moscow’s efforts to increase its geopolitical clout in the Middle East.
To raise or not to raise
Iran is not alone in its battle against output hikes, with Iraq and Venezuela also objecting.
“They stand to lose if production is increased,” said Schieldrop.
According to the International Energy Agency, only a handful of countries in the OPEC+ alliance are realistically able to boost production in the short term.
That includes top supplier Saudi Arabia, its Gulf allies Kuwait and the United Arab Emirates, and Russia.
For most of the others it would make more sense to stick to the restrictions and sell their limited supply at a higher price.
Since OPEC operates on the principle of unanimity, analysts expect some sort of compromise agreement to be thrashed out by Saturday.
“War is war, business is business,” said Sen, noting that OPEC ministers have proved before that they are able to set aside geopolitical differences.