As February has drawn to a close—marking three months since OPEC agreed to hold to production levels of 30 million b/d—there is a widening fissure within the group over the impact that low oil prices are having on member countries’ economies. With Nigeria joining the ranks of its fellow disgruntled member countries Iran and Venezuela in trying to publicly and privately pressure the group to convene an emergency meeting to discuss production cuts for a price recovery, the divide between OPEC’s “haves” and “have nots” is glaringly obvious. Nigeria’s oil minister even alluded to the differences among members in an interview with the Financial Times on February 23rd, essentially pointing the finger at the GCC contingent within the organization as feeling less of a financial pinch than everyone else.
However, it’s clear that without the go-ahead of Saudi Arabia, an emergency OPEC meeting will not occur before the next scheduled gathering of the oil ministers in Vienna on June 5th. As far as Riyadh is concerned, things are exactly where OPEC’s largest producer wants them to be. With oil prices in the $50-$60 range, some 60% lower than June 2014, Saudi Arabia’s wish to see high production from both independent producers and errant OPEC members start to wane as they cede valuable market share is happening.
Saudi Oil Minister Ali Naimi even reinforced the notion that the Kingdom has no plans to change its current strategy of focusing on market share rather than worrying about high production and oil prices in comments he made on February 25th. Speaking to reporters on the sidelines of a conference in southwestern Saudi Arabia, the veteran Saudi oil official noted that the markets have calmed down, with the price of Brent stabilizing at around $60 a barrel and that demand is growing, with lower oil prices beginning to foster demand particularly in China and the United States.
The Saudis are losing little sleep over that fact that among the hardest hit financially are independent producer Russia and fellow OPEC member and regional antagonist Iran. Indeed, should Riyadh’s fear that the United States and its five negotiating partners will broker an historic agreement with Iran on its nuclear program in the coming weeks be realized, Saudi Arabia is unlikely to want to give Tehran another reward in the guise of higher oil prices anytime soon.
In an interview with The Financial Times on June 23rd, Nigerian Oil Minister and current OPEC President Diezani Alison-Madueke stated that she had been in consultations with other members within the group and that if the price of oil fell any further, “it is highly likely that I will have to call an extraordinary meeting of OPEC in the next six weeks or so.” According to the Nigerian oil official, most of the OPEC member nations, with the exception perhaps of the Arab Bloc (meaning Saudi Arabia and its fellow GCC members within OPEC—Kuwait, the U.A.E. and Qatar), “are uncomfortable.”
Not surprisingly, Alison-Madueke’s public insistence that an emergency OPEC meeting was in the offing was quickly shot down by Gulf delegates, according to reports. According to one OPEC source in the Gulf, no extraordinary meeting was slated and there is “no price target to trigger” such a meeting. To underscore the point, the source said that any change in the organization’s current policy of quota-free high production would require some independent producers to agree to cut back on their output and that doesn’t appear likely.
Oil prices experienced quite a bit of volatility in the latter part of the last week of February thanks to conflicting reports about supply and demand. Based in part on inventory data released on February 25th by the U.S. Energy Information Administration (EIA) that indicated that U.S. oil stockpiles had reached heightened levels not seen in nearly 80 years and that U.S. oil output had hit a new weekly high of 9.3 million b/d amid an oversupplied market, crude prices took a dive on February 26th, with U.S. April crude plunging $2.82 to settle at $48.17 and the price for Brent falling $1.58 to settle at $60.05. However, on February 27th, oil prices rebounded, bolstered by surging demand for refined gasoline and diesel, with the U.S. benchmark oil contract adding $1.59 to settle at $49.76 a barrel and the contract price for Brent jumping $2.53 to settle at $62.58 a barrel.
The markets shrugged off news on February 27th from Baker Hughes that its count for U.S. oil rigs drilling for oil had fallen by 33 the last week of February to 986, the first time the rig count had slid below 1,000 since June 2011. In addition, JBC Energy suggested that the rig count decline should translate into U.S. crude levels shedding 200,000 to 250,000 b/d in the second half of 2015.
Some reports have suggested that U.S. shale producers are scaling back so dramatically on drilling and capital spending as a result of the sustained low oil prices that U.S. crude output could start to take a hit sooner rather than later. In fact, a number of U.S. shale producers have reported 25-70% reductions in drilling and collectively at least $25 billion in spending cuts.