By February 15, 2016 Read More →

‘Conversations’ beginning about global production cuts to support oil prices

Geo-political tension between Iran, Saudi Arabia one stumbling block to coordinated oil prices support

Cracks appear to be growing in the resolve of global producers to continue pumping at full tilt while oil prices continue to tumble, but forging a consensus to do something about it in the near-term is far from certain.

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Nigerian Oil Minister Emmanuel Ibe Kachiwku REUTERS/Afolabi Sotunde.

Nigerian oil minister Emmanuel Ibe Kachiwku told Reuters that OPEC members are beginning to discuss the possibility of shoring up prices. Smaller oil nations like Venezuela and Nigeria have been hit hard by prices that dipped below $30/b recently, and even organization leader Saudi Arabia – the principal proponent of keeping the taps open to drive high-cost producers from the market – is feeling the pinch in government coffers.

“There’s increased conversation going on. I think when we met in December … they (OPEC members) were hardly talking to one another. Everyone was protecting their own positional logic,” Nigerian oil minister Emmanuel Ibe Kachiwku said in a Reuters interview.

“Now I think you have cross-logic … they are looking at what are the deficiencies, what is the optimum.”

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Photo courtesy journal-neo.org.

Struggling oil producers have made repeated calls for an emergency OPEC meeting, but Kachikwu said that the timing had not been right. The cartel’s next regular meeting is in June.

“We haven’t been sure that if we held those (emergency) meetings that we could actually walk away with some consensus,” Kachikwu said.

“A lot of barrels are tumbling out of the market from non-OPEC members, so the Saudi philosophy is obviously working. But it’s not influencing the price higher, which means that whether we like it or not some barrels are coming in from … members and non-members to cover whatever is dropping out.”

Venezuela oil minister Eulogio Del Pino has been visiting other OPEC members and Russia to gain support for coordinated production cuts, but Russia has made it clear that nothing is happening without the Saudis and other major Arab producers.

oil prices

Venezuelan President Nicolás Maduros on a visit to PdVSA oil workers in the Orinoco Petroleum Belt.

Russian Energy Minister Alexander Novak told Del Pino in early Feb. that he would be willing to attend a meeting OPEC and non-OPEC producers, should such a gathering occur, according to Bloomberg.

“Nothing serious here,” Alexander Kornilov, an oil analyst at Aton in Moscow. “It would make no sense to collaborate with only Venezuela, with no support from other OPEC members, more powerful Arabic countries.”

The re-emergence of Iran, which recently resumed exports to Europe, as a supplier to global markets following the nuclear agreement and lifting of sanctions, has become an important issue for Russia, which wants to see closer cooperation between regional geo-political powers Iran and Saudi Arabia.

Zamir Kabulov, a senior official at Russia’s Foreign Ministry, was quoted by the RIA news agency as saying, “We all need stability on the oil market and a return to normal (crude) prices…And these are the key nations, especially Saudi Arabia and Iran, which is striving to return to the oil market.”

Last week, the United Arab Emirates’ energy minister said OPEC was willing to cooperate on an output cut, the Wall Street Journal reported last week.

That optimism led to a jump in Brent crude futures LCOc1, the global benchmark, which was unchanged Monday morning at $33.36 a barrel. U.S. futures CLc1 traded at $29.67 a barrel, up 23 cents on Friday’s close. Trade volume was low due to the Presidents Day holiday, according to Reuters.

“Some traders still think about the chances of an OPEC plus Russia (production) cut and close their short positions,” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

The International Energy Agency said in Jan. that the global oil market could be over-supplied by 1.5 million b/d for the first half of 2016.

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