Non-Opec consensus is crucial

06 December 2016

Opec needs to convince non-Opec countries this week to agree to help boost prices in 2017

Opec, which faced a hard task in late November in convincing its members to agree to reduce production to 32.5 million barrels a day (b/d), faces an even harder job of convincing non-Opec countries this week to agree to help lower oil prices in 2017.

Fourteen non-Opec members, including Bahrain and Oman, have been invited to talks in Vienna on 10 December by Opec secretary-general Mohammad Barkindo.

The agreement to cut production was considered within the context of convincing non-Opec states to cut production by 600,000 b/d.

Russia has agreed to cut back half the proposed non-Opec reduction targets.

Oman has been the most amenable to production cuts, with its oil minister Mohammed al-Rumhy quoted as saying that the production cut of 1.2 million b/d “was not enough” as the market is still oversupplied.

“Oman will cooperate to achieve the planned target,” he said ahead of the Vienna meeting. “Our percentage decrease in production will depend on the meeting and how much we are asked to cut.” 

Other larger non-Opec producers sound less compliant.

Kazakhstan, which will officially open its Kashagan oil field on 7 December, has shown an unwillingness to cut production.

Non-Opec output accounts for a fifth of global oil production. While Mexico has, in the aftermath of the Opec decision, said it would lower output, others such as Brazil, which attended the 30 November meeting as an ‘observer’, said its plans to increase production would continue regardless of an Opec agreement.

Immediately after the Opec deal was struck, oil prices jumped 10 per cent and then declined as producers such as Saudi Arabia and Russia ramped up production before the cuts.

In his latest candid admission post-retirement, former Saudi oil minister Ali al-Naimi was quoted as saying: “We tend to cheat.”

For all producers to stick to cuts in order to keep prices stable, a non-Opec consensus is even more crucial.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.