In anticipation of Thursday’s semiannual OPEC meeting, the following provides a breakdown (by country) of some of the key issues for both OPEC and participating non-OPEC players. The key issues that will be addressed at the meeting are whether countries will agree to extend the existing oil production cut agreement, how many months they will extend it, and whether new countries will join the agreement.
Based on Saudi Arabia’s leadership and the confirmations coming from Saudi oil minister Khalid al-Falih and others, the market is already pricing in expectation that an agreement will be reached. An agreement on Thursday would likely bring a price bump, but the long-term impact may be limited unless evidence emerges of decreased oversupply.
Iraq: The Iraqi government wants to be compensated with higher oil production quotas after years of war and sanctions, during which it could not produce and export its oil. Iraq sees itself as holding the line against regional instability from ISIS and is seeking increased oil revenue to pay for that war. It also has financial commitments to private oil companies that would make further production cuts onerous. Despite Iraq’s obvious dislike of the production cut deal, a visit by Saudi oil minister Khalid al-Falih on Monday apparently convinced Iraq’s prime minister and oil minister to support the 9-month extension. Iraq has had generally complied poorly (pumping an average of 80,000 more barrels per day than permitted) over the first 5 months of the deal. Investors can expect Iraq to continue cheating if the cuts are continued.
Iran: The Iranian oil minister is expected to support the 9-month extension of the OPEC deal as presented. This arrangement preserves the special considerations given to Iran that permits the country to produce almost 4 million bpd at times, as long as its average production over the deal’s timeframe is lower. With President Rouhani’s recent reelection, the democratically elected part of Iran’s government is hoping to attract more foreign investment for Iran’s oil industry. Iran has been seeking foreign investment since sanctions ended, but the restrictions placed by hardline conservatives in the government have scared away many potential investors.
Saudi Arabia: Oil minister Khalid al-Falih continues to exert Saudi Arabia’s power in the oil market to push OPEC and non-OPEC members to agree to a 9-month extension of the current production agreement. However, he has stressed that nothing is final until the meeting and that OPEC is “open for any proposals regarding output cuts.” Traders should not necessarily expect a major bump in prices if all goes as planned at the OPEC meeting. It is highly unlikely that al-Falih will try to gain consensus for deeper production cuts. Saudi Arabia has made significant cuts to its oil production and will likely continue to produce below or at its quota for the duration of the extended deal.
Nigeria and Libya: If all goes as planned, both Nigeria and Libya will continue to be exempt from any production cuts or quotas for the next 9 months. Iraq’s oil minister indicated that Nigeria may be asked to make production cuts at the OPEC meeting because its oil production has recovered from terrorist sabotage. However, Nigeria has indicated that it intends to ask for a 6-month extension of its current exemption. Libya’s oil production has also risen in recent weeks as its fields recover from after a long period of instability.
Algeria, Angola, Ecuador, Gabon, Kuwait, Qatar, UAE: These OPEC countries will continue to participate in the production cuts and follow Saudi Arabia’s lead in supporting a 9-month extension.
Venezuela: President Maduro was an early supporter of the 9-month extension, but the serious political unrest and economic instability in that country make all assessements of Venezuela’s reactions limited. It is possible that all 1.9m bpd of Venezuelan oil could be removed from the market temporarily as protestors begin sabotaging energy-related installations belonging to the country’s state oil company (PDVSA).
Equatorial Guinea: This African country has been seeking to join OPEC since 2009 and, with Saudi backing, is likely to be admitted as a member this week. It is Africa’s third largest oil producer at approximately 227,000 bpd. Last December, Equatorial Guinea joined the non-OPEC deal and cut 12,000 bpd.
Russia: Key Russian oil policy makers, President Vladimir Putin, Energy Minister Alexander Novak, and Rosneft CEO Igor Sechin all voiced support for a 9-month extension. According to an analysis by S&P Global Platts, Russia’s compliance with its 300k bpd reduction has been inconsistent. OPEC is likely to overlook Russia’s compliance issues in favor of a wider consensus, but investors should be aware that Russian compliance, along with non-OPEC compliance as a whole, will be questionable for the duration of the agreement.
Kazakhstan: This central Asian republic agreed to cut only 20,000 bpd of its 1.5m bpd output back in December 2016. It is now considering dropping out of the oil production agreement as it brings additional production online from its Kashagan oil field. Kazakhstan says its commitments to investors in this oil field make further production cuts impossible. However, the country is sending representatives to the OPEC meeting, so it is possible that Kazakhstan may agree to continue to participate in some form.
Mexico: Mexico announced on Monday that it would support the 9-month extension plan, although the country continues to invite private domestic and foreign investment into its oil industry to revive lagging production.
Unnamed countries: Khalid al-Falih said that additional “small” oil producing countries have indicated willingness to participate in the production cuts. It is unclear who these countries are, however Turkmenistan, Egypt, and Ivory Coast have all confirmed attendance at the Vienna meeting. Ivory Coast produces approximately 53,000 bpd; Turkmenistan produces about 244,000 bpd; and Egypt 723,000 bpd. Egypt is the least likely to join in the agreement, because it does not even produce enough oil to take care of its own needs. Although Norway has been mentioned as a potential new participant, its oil minister confirmed that the country has no plans to attend the meeting or join in the production cuts.
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