By Fereydoun Barkeshli for Trend
Members of Saudi-sponsored International Energy Forum (IEF) met in Algiers 26-28 of September .
It was a known fact that all OPEC members who are members of IEF would seize the opportunity to discuss the issue of oil market that is of interest to all members including Saudi Arabia which has already spent $200 billion of its currency reserves in order to cover the deficit caused by fall in oil prices.
In fact, a week before the IEF meeting a number of high-ranking officials of some OPEC member states gathered in Vienna to discuss options and possibilities of negotiating the oil market situation in Algeria on the sidelines of IEF annual meeting where a number of major non-OPEC producers, notably Russia, would attend.
Among those attending the Vienna meeting were high-ranking oil industry officials from Iran, Saudi Arabia, Algeria and Mohammed Barkindo, and a newly appointed OPEC Secretary General.
Vienna meeting ended with no official or written communique as it was in fact a closed consultative meeting. Saudi Arabia repeated its call for production freeze by all OPEC members notably Iran and non-OPEC member Russia.
Iran stood dead firm on its pre-sanction production quota of nearly 4 million barrels per day (mb/d) which means 13 percent of overall OPEC production ceiling. In fact one more demand by Iran was a return of OPEC production quota system.
Algeria was much too eager to conclude a major deal in its capital as the country has actually been the home of couple of important Events including the first summit of OPEC heads of states back in 1975.
Now going back to five-hour long September 28 meeting in Algiers, OPEC made a historic deal as was mentioned by Iran’s Oil Minister Bijan Zangeneh.
Saudi Arabia accepted and endorsed Iran's demand to start any production adjustments only after it arrived and sustained its pre-sanction quota of 4 mb/d and this could perhaps be applicable to Nigeria's production level which severely declined after civil unrests in the country. Besides, Saudi Arabia seems to have dropped its demand for the major non-OPEC rival Russia which had constituted a complicated dilemma.
However, back to the main issue of the current OPEC decision and its impact on the market, of course there will be a short term market speculative reaction and price will show a tendency to go up by some percentage.
Current oil market is demand-driven and unless the current low oil prices do not penetrate into the consumption network and boost demand, there is unlikely a possibility of holding for long. Of course OPEC is capable of cutting further as it did in 2013 and many other times before.
There must be a supply and demand balance and non-OPEC members must come forward to support the organization. OPEC share is currently 30 percent of total global supply which is not enough to allow to maintain discipline in the market.
Having said that, international oil market may need to wait through the second half of 2017 to witness a meaningful stability.
Fereydoun Barkeshli, president of Vienna Energy Research Group in Austria and the National Iranian Oil Company’s former general manager for OPEC and international affairs