Oil markets contiued declining as OPEC oil ministers met in Vienna on December 6. Saudi Arabia, OPEC’s defacto leader, is seeking to cut production after the group allowed certain producers to overproduce in anticipation of the Iran sanctions last May. Many, but most especially President Trump, feared oil prices would rise to the triple digits if Saudi Arabia and others did not increase output.
Saudi Arabia’s Energy Minister Khalid al-Falih arrives to the 175th OPEC Conference of Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria on December 06, 2018. (JOE KLAMAR/AFP/Getty Images)Getty
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Since the U.S. decided to award exemptions from the Iran sanctions to certain countries oil prices have fallen from four year highs. Many OPEC countries resent that Saudi Arabia, Kuwait, Iraq, UAE and Russia have overproduced the allocation levels agreed to in November 2016 and in so doing brough oil prices down. Waning global demand and record production from the U.S. have led most countries to believe that a production cut in 2019 is necessary to prevent further price declines.
Two factors are complicating efforts to reach a production cut agreement. The first is that Saudi Arabia does not want to shoulder the brunt of the production cut while other countries (such as Iran, Venezuela and Libya) want exemptions from across the board cuts. The second is U.S. President Donald Trump. President Trump made his position clear on Wednesday when he tweeted that he hopes OPEC keeps oil production at current levels.
However, U.S. President Donald Trump has made his position clear to Saudi Arabia. He does not want to see OPEC cut production and would like to see even lower oil prices. Saudi Arabia’s official line is that it will not allow foreign governments to dictate oil policy but it is clear that Khalid al-Falih is clearly taking President Trump’s sentiments seriously and would like to keep the pressure from Washington to a minimum.
People stand in front of the headquarters of the Organization of the Petroleum Exporting Countries, OPEC, in Vienna, Austria, Wednesday, Dec. 5, 2018. (AP Photo/Ronald Zak)
The competing demands of the 15 OPEC producers (14 since Qatar’s abrupt departure after the opening speeches on Thursday), President Trump, Russia and a desire to see oil prices increase did not come come together for Saudi Arabia on Thursday. The meeting ended abruptly without any decisions or announcements with further negotitions put off until the following day.
On Friday, Russia oil minister Alexander Novak will return to Vienna and if he signals support for a production cut, then OPEC is likely to reach a consensus on its part. What remains unclear is the number of barrels of oil these producers will take off the market and if it will be enough to send oil prices higher as we head into 2019. What is clear, however, is that Russia is now indispensible to OPEC. In 2016, a last minute phone call to Novak and a commitment from him to cut oil production finally pushed OPEC producers towards the necessary consensus that resulted in across the board output reductions. Now, as then, Russia holds all of the cards.