Oil production cut proposals stir in-house tensions within OPEC
4 Min Read
An article by The Wall Street Journal sheds light on tensions brewing inside OPEC+ as Saudi Arabia looks to push oil prices up by forcing smaller members to cut oil production.
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A 3D-printed miniature oil pump jack placed in front of a plummeting stock graph with OPEC's logo, April 14, 2020 (Reuters)
Saudi Arabia and other OPEC members found themselves in a heated dispute over oil production quotas ahead of a crucial meeting on Sunday, according to an article published by The Wall Street Journal.
The quarrel among the group's constituents points to the rising tensions within OPEC, which stem from concerns about the weakening global energy demand.
As the largest oil producer in the organization, Saudi Arabia insisted that smaller African producers reduce their production quotas while simultaneously engaging in discussions with the United Arab Emirates (UAE), another influential member of the group, to negotiate an increase in their production, sources told WSJ.
On Saturday, Saudi Oil Minister Abdulaziz bin Salman summoned several African delegates to his hotel suite in Vienna, where he informed them of the planned reduced production quotas, WSJ reported.
However, the meeting concluded with both sides unsatisfied as no agreement was reached. African countries like Nigeria and Angola have struggled to meet their existing production targets due to factors, such as pandemic-related shutdowns and years of underinvestment in the sector.
Oil cuts fail to inflate Brent Crude
During the upcoming OPEC+ meeting in Vienna, which hosts the 13 OPEC members and 10 other oil-producing states, discussions will revolve around the possibility of a production cut of up to 1 million barrels per day. This proposed cut aims to stabilize crude prices amid concerns about the global economy slowing down and its potential impact on energy demand. However, most members are hesitant to sacrifice their allocated production quotas, as it directly affects their overall revenues.
If approved, this Sunday's output cut will be the third implemented by OPEC+ since October, when they initially reduced output by 2 million barrels per day. In April, the group's major members, including Saudi Arabia and Russia, further reduced production by 1.6 million barrels per day. The decision to cut production was bashed by the United States, the world's largest oil consumer, which at the time requested increased production to tame global inflation.
Since OPEC and its allies first implemented output cuts in October, the international oil benchmark, Brent Crude, has fallen by over 20%. Consequently, it is not expected that another output cut on Sunday will elicit a significant reaction from Washington, as most analysts anticipate that oil prices will continue to trend low.
Saudi-Russian tensions on the rise
The OPEC+ meeting also takes place amid mounting tensions between two major oil producers as reported earlier by WSJ as Moscow is supposedly curbing the agreed cuts with Saudi, according to data published by 3rd party observers for the month of April.
It remains uncertain if Saudi Arabia will take immediate action that would impact its energy alliance with Russia as the two countries faced a similar position in March 2020, when oil prices plummeted after the two countries failed to reach an agreement to address a supply glut but still managed to cooperate in other instances. In response to reported non-commitment by Moscow, Riyadh initiated a price war to gain oil market shares.
Read more: Tensions between Riyadh and Moscow on the rise due to oil prices: WSJ
According to the WSJ article, OPEC delegates have noted that major production decisions within the cartel are increasingly made by Prince Abdulaziz without extensive consultation with other members.
The piece further claims that in recent months, Prince Abdulaziz has directed his attention towards Wall Street short sellers, frequently criticizing traders whose activities can cause prices to decline. Last week, he issued a warning to them, which some analysts interpreted as a sign that OPEC+ may reduce output in today's meeting.
The focus on financial markets underscores the pressure faced by Prince Abdulaziz as the first prince to oversee the oil ministry. While Crown Prince Mohammed bin Salman pursues his ambitious plans to reshape Saudi Arabia's oil-dependent economy, Abdulaziz must maintain crude prices at a level that makes these endeavors economically viable.
Riyadh is "under pressure to maintain higher oil prices with its budget requiring an estimated $81 a barrel" to meet expenditures.
The country has undertaken "massive development projects," which have been described as "gigaprojects" that have pushed Riyadh to increase oil income to fund its spending which has been estimated to cost hundreds of billion of US dollars.
