OPEC’s Media Blockade, Market Threats: All to Show Who’s Boss

It’s what authoritarian regimes do when they want to black out information or silence news that’s inconvenient. And this week, OPEC, the oil cartel, showed similar despotic, or desperate — depending on how you see it — behavior by excluding several news organizations and their reporters from its June meetings.

The 13-member Saudi-steered Organization of the Petroleum Exporting Countries and its 10 allies led by Russia — an alliance collectively known as OPEC+ — control at least 40% of the world’s crude. Meetings of the alliance that decide how much oil those 23 countries pump a month — from technical discussions among low-ranking officials to the high-powered decisions made by the oil or energy ministers of those nations — are of immense interest to the media and markets.

In a seemingly unprecedented move, reporters from Reuters, Bloomberg, and the Wall Street Journal who normally cover OPEC did not receive “invitations” to attend the organization’s June meetings that begin Friday and are scheduled to end with Sunday’s ministerial session/decision on production quotas/news conference. The OPEC Secretariat in Vienna is the venue for the meetings. The invitations start the accreditation process for reporters who specialize in oil coverage and regularly follow OPEC and its activities.

No explanation was given by the secretariat for the exclusions of the journalists from this week’s meetings. Odder was that two Wall Street Journal reporters who do not regularly cover OPEC received invitations, according to CNBC, which reported on the matter.

The identities of the affected reporters haven’t been revealed, but it doesn’t take a genius to figure out what’s going on: OPEC is practicing a selective media blockade, targeting journalists who haven’t been reporting the OPEC beat to its liking.

The heavy-handed action comes after the Wall Street Journal said in a May 27 story that tensions were rising between the Saudis and Russians as Moscow keeps pumping huge volumes of cheaper crude into the market, which is undermining Riyadh’s efforts to bolster energy prices.

Prior to that, on May 24, Bloomberg reported that OPEC watchers expect the group and its allies to refrain from further production cuts next week, even after Saudi Arabia delivered a warning to short sellers.

Just around the same time, on May 25, Reuters said the number of short positions in oil, essentially betting that prices will fall, has risen ahead of the OPEC+ policy meeting on June 4.

Taken together, the reports suggest that deeper production cuts aren’t probably what OPEC+ needs right now, though that might still be fine because of oncoming demand.

But isn’t that what nearly every level-headed energy analyst has been saying? Summer travel, the mainstay of oil demand aside from winter heating, is expected to peak from here, as anyone following the oil trade will know. Even short-sellers will acknowledge it’s that time of the year when consumption will likely keep a barrel at well above $70 (periodically reaching $80, or even above, as OPEC would aspire).

This is despite concerns about the economy and persistent worries of recession — including whether inflation will sufficiently come under control for the Federal Reserve to the European Central Bank to pause on rate hikes.

Also, during the summer, more oil is required for cooling purposes in Saudi Arabia and other Middle East/African states that make up OPEC+’s biggest export volumes. The number of barrels emerging from the group “are likely to tighten come what may,” Citigroup said in a note Thursday.

If so, what’s wrong for media outfits to say that a stay in production — with OPEC+ standing by to do more cuts if summer demand disappoints — is the best for now? What’s particularly egregious in media reports suggesting the group should be disciplined instead in enforcing the two rounds of cuts — totaling 3.7 million barrels daily — it announced between October and April?

As the Wall Street Journal article implied, more production cuts could only result in more deceit from the Russians who claim to be cutting 500,000 barrels daily but instead shipped in May their largest oil volumes monitored at the start of 2022, prior to the Ukraine war and the resultant sanctions on Moscow.

The Financial Times, one of the publications whose oil reporters weren’t affected by the selective media blockade, said,

“If Saudi Arabia cuts and Russia doesn’t then they will have to accept giving up more market share in Asia,”

That’s because, as every oil trader (and probably his grandmother) knows, in the event of more cuts, the Saudis will again be the mule carrying the bulk of the load. Case in point: During the April round, the Saudis offered 500,000 barrels per day as their pain. Iraq agreed on 211,000; the United Arab Emirates 144,000; Kazakhstan 78,000, Algeria 48,000; Oman 40,000; and Kuwait 28,000. While we know what Russia did (or didn’t do), there’s also no evidence of how true the rest were with their commitments.

Back to the strike against selective media: News organizations have always reported on OPEC as they deemed fit. Oil reporters, like those covering any other beat, compete for scoops, especially sensational stories — that aren’t necessarily flattering to OPEC. The point is they don’t sit around waiting for press handouts.

The Financial Times article recalled “famously chaotic” coverage of OPEC meetings, where ministers were prone to delivering market-moving comments to reporters camped out in the lobby of luxury hotels. “On occasion, ministers are chased through the streets of Vienna by reporters if meetings break down in acrimony, without a formal statement on any agreement being made,” the article noted.

As such, oil prices can swing like crazy between OPEC meetings, and journalists offer no apologies for their work. The pandemic had resulted in almost no in-person OPEC meeting for two years before they resumed for the first time last October. Since then and until this week, every other meeting of the group has been virtual or via video.

As of Friday, Reuters, Bloomberg, and The Wall Street Journal were still expected to send their choice reporters to Vienna, even if they cannot access the OPEC Secretariat, news reports said.

All said and done, this week’s actions by the OPEC Secretariat don’t seem to be merely motivated by annoyance with select media or reporters.

There’s something beyond that, and John Kilduff, who’s spent nearly two decades watching OPEC — first as an oil analyst, then a trader, and later as a partner at an energy hedge fund — thinks this is it:

“It’s all about control and to show who’s boss. It’s what despots do — seize control of the media or punish them for inconvenient reporting so that they become more pliant to their masters. OPEC has a kind of pricing power it hasn’t had in the past two decades and it’s trying to bring the entire market, including the media, under its thumb.”

“OPEC forgets one thing though: It might own the commodity but how that commodity is traded, priced and the impact it has on buyers and consumers across the world gives the media the right to ask all the questions it wants of OPEC and be critical of the organization, when necessary. And OPEC has to accommodate all media. For markets to be efficient, information has to be efficient and free-flowing. Selective strikes against journalists don’t help.”

Neither do threats against oil traders, if I may add.

Like any organization, where its culture is reflected by its top leadership, OPEC’s ways and workings are largely influenced by the whims and wants of the Saudis. Since becoming Saudi energy minister four years ago, Abdulaziz bin Salman has been trying to get the better of the short-sellers in oil, often threatening to make them “ouch” — his favorite expression for the hurt he intends to cause them with price spikes from production cuts.

Relishing his avatar as the ‘Dirty Harry’ of oil — a preoccupation that began shortly after his appointment in 2019 when he told the bears in the market to “Go Ahead, Make My Day,” borrowing a quip from the fictional Hollywood cop — Abdulaziz has become increasingly aggressive in his battles against short-sellers who serve as a check against high crude prices.

Believed to be acting as much on his own whim as that of his half-brother and Saudi Crown Prince Mohammed bin Salman, who wants $80 a barrel or more, Abdulaziz issued a fresh threat to those betting on lower oil prices in the run-up to this week’s OPEC meeting. That’s being cited in the market as one of the reasons for the action against certain media, especially those made light of the Saudi minister’s threat after a barrel fell to below $70 this week.

The Financial Times made a good point of this when it quoted a former energy trader for Russia’s Gazprom (MCX:GAZP), Adi Imsirovic, as saying that Abdulaziz appeared to have backed himself into a corner by indicating the group could cut production again. The minister, Imsirovic said, was “speaking without thinking through the consequences — if you make the market think you’re going to cut supply and you don’t, then prices will fall.”

But as Citigroup said in its note issued Thursday,

"OPEC+ might be moved to act with a further cut to remind markets that … [a] further tightening might be in their interest.”

If anything, it would again serve to show skeptics “who’s the boss” in this market.

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Disclaimer: The content of this article is purely to educate and inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.