VIENNA: Saudi Arabia has promised not to flood the oil market with extra barrels even as OPEC failed to agree on output policy, with Iran insisting on the right to raise production steeply.
Saudi Arabia moved to soothe market fears that failure to reach any deal would prompt OPEC’s largest producer to raise production further and gain additional market share.
“We will be very gentle in our approach and make sure we don’t shock the market in any way,” said Energy, Industry and Mineral Resources Minister Khalid Al-Falih.
“There is no reason to expect that Saudi Arabia is going to go on a flooding campaign,” Al-Falih said when asked whether Saudi Arabia could accelerate production.
OPEC also decided unanimously to appoint Nigeria’s Mohammed Barkindo as its new secretary-general.
Saudi Arabia and its Gulf allies had tried to propose OPEC set a new collective ceiling in an attempt to repair the group’s waning importance.
But Thursday’s meeting ended with no new policy or ceiling amid resistance from Iran.
Iran’s Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on individual-country production quotas, effectively abandoned by OPEC years ago.
“Without country quotas, OPEC cannot control anything,” Zanganeh said.
He insisted Tehran deserved a quota — based on historic output levels — of 14.5 percent of OPEC’s overall production.
OPEC is pumping 32.5 million barrels per day (bpd), which would give Iran a quota of 4.7 million bpd — well above its current output of 3.8 million, according to Tehran’s estimates, and 3.5 million, based on market estimates.
At its previous meeting in December 2015, OPEC effectively allowed its 13 members to pump at will.
As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages. On Thursday, Brent prices eased 1.5 percent to $49 per barrel.
That OPEC could not agree on a benign deal is a sign that political differences are undermining the organization, said Gary Ross, founder of US-based PIRA consultancy.
“It is bearish short-term for oil prices. But what is also important is that Saudi Arabia is not planning to flood the market,” Ross added.
Zanganeh made a few conciliatory remarks, saying he was happy with the meeting and received no signals from other producers that they planned to increase output.
For Amrita Sen of Energy Aspects, who like Ross traveled to Vienna to meet OPEC officials, the meeting sent an encouraging signal about the state of the organization.
“It actually restores market confidence that Saudi Arabia is committed to OPEC. This is a success compared to three days ago when people had been expecting Al-Falih to walk out of the OPEC room,” said Sen.
Al-Falih was the first OPEC minister to arrive in Vienna this week, signalling he takes the organization seriously despite fears among fellow members that Riyadh is no longer keen to have OPEC set output.
“There could be shorter-term situations in which, in our view, OPEC might intervene and yet other situations — such as long-term growth of marginal barrels — in which case it should not,” Al-Falih told Argus Media ahead of the meeting.