Oil ministers and high-level industry officials will gather in Abu Dhabi on Thursday to assess a finely poised market.
Benchmark North Sea Brent crude futures have risen by more than 30 per cent since mid-November to hit an 18-month high last week of US$58.37 per barrel. Jittery traders, however, sent prices down by more than 3.5 per cent on Monday as a recent rally ran out of steam, leaving Brent at about $55.17 per barrel late on Tuesday.
The gathering will be attended by Khalid Al Falih, Saudi Arabia's energy minister, as well as Suhail Al Mazrouei, his UAE counterpart, and Mohammad Barkindo, the secretary general of Opec.
Mr Al Falih and other officials from Opec member states have been careful to make only reassuring comments since their deal at the end of November to restrain production – but they are under increasing pressure to make clear how that deal, as well as a complementary one by some non-Opec producers, will be policed to ensure credibility.
The first meeting of a committee to monitor the deal is due on January 22 at Opec’s Vienna headquarters, which will be jointly chaired by oil ministers from Kuwait and Russia.
The event, which is being run by The Atlantic Council, a US think tank, will also feature some senior executives from Abu Dhabi’s oil establishment, including Sultan Al Jaber, the head of state oil company Abu Dhabi National Oil Company (Adnoc).
The key players’ comments will be closely monitored for clues as to how they intend to maintain credibility long enough for the global oil market to soak up a glut that has lasted for more than two years.
While Saudi Arabia and its closest Arabian Gulf allies – the UAE, Kuwait and Qatar – have all made clear moves to reduce exports, it is not clear how or if some other parties will comply.
“There will be some countries that will cheat, Iraq being the most likely culprit,” said Amrita Sen, the chief oil market analyst at Energy Aspects. Iraq had initially argued for an exemption because of its special circumstances, as Libya and Nigeria were exempted because of lost output because of conflict, and Iran because it is still recovering from sanctions.
But Iraq had been producing at record levels in the months before the deal and so agreed to come back into the quota system for the first time in decades.
On Tuesday, however, its State Oil Marketing Company (Somo) told customers it plans to export more than 3.6 million barrels per day (bpd) next month, up from a record 3.5 million bpd last month. That would seem to contradict statements by the ministry on Tuesday saying it had already cut output by 160,000 bpd on the way to meeting its obligation under the Opec deal to cut 210,000 bpd in the first half of this year.
Iraq’s oil minister, Jabbar Al Luaibi, had been scheduled to attend the Abu Dhabi conference but will not be coming.
Similarly, while Russia has agreed to cut 300,000 bpd, its deputy energy minister subsequently laid out plans to boost exports this year on top of last year’s 5 per cent increase.
Apart from the credibility of the output deals there is also the big question of demand this year, predictions about which are made more difficult than usual because of a new government in the US, shifting policies in China and other factors.
“As the tussle between the short-term overhang and medium-term supply crunch intensifies in 2017, the uncertainties around demand could get worse,” Ms Sen said. So “lying ahead is another year of volatility in prices”.
amcauley@thenational.ae
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