Azernews.Az

By Fatma Babayeva

OPEC member states gathered in Vienna, Austria for 169th meeting of the organization on June 2 which was a new failure on reaching a consensus on oil production ceiling.

The move was a next attempt to return the organization’s role as an oil cartel which determines supplies and prices in the global market.

Failure of Vienna meeting was expected to revive market fears that the largest producer of OPEC, Saudi Arabia - which pump oil near record highs- will increase its oil production to punish its rivals and gain additional market share, reported Reuters on June 2. Nevertheless, Saudis were milder in its stance and said that they do not plan to flood the market.

The geopolitical tensions between Saudi Arabia and Iran, which also caused OPEC’s previous Doha meeting on April 17 to founder, still were in place during the meeting.

Oil freezing plan, developed in February 2016, envisaged limiting oil production to levels at the volumes produced in early 2016 in order to prop up sinking oil prices since-mid 2014.

Saudi Arabia has kept requiring commitment from Iranian side to the oil freezing plan since early 2016, whilst Iran insisted on reserving its right to bring its oil production and export to pre-sanctions levels, respectively 4 million and 2.2 million barrels per day.

A day before Vienna meeting, Iran’s Petroleum Minister Bijan Zanganeh said to Reuters that Iran would not support any new collective output ceiling and wanted the debate to focus on individual country production quotas. He insisted that Iran deserved a quota based on historic output levels, making up 14.5 percent of OPEC’s overall production.

Previously in May, Iran’s officials said that Iran will be ready to join OPEC’s quota within one or two months of reaching pre-sanctions level of oil production and export which is expected to happen by late summer in the longest.

However, OPEC ceased setting production quotas for individual members in 2011 and abandoned an output ceiling entirely in December 2015 by allowing its members to pump oil at will.

Moreover, proxy war in Syria and Yemen and the security for Muslim pilgrims in Mecca were other factors contributing to the intensification of relations between these two countries.

The major outcome of the meeting was the appointment of the new Secretary General of OPEC Nigerian Mohammed Barkindo. The secretary general acts as a mediator among OPEC’s divided factions.

Gabon was also readmitted to OPEC during the meeting extending the number of members to 14 countries. Decision allowing the country’s rejoin to the organization will be effective from July 1. Gabon left the organization about two decades ago.

Last year, OPEC readmitted Indonesia as well, which were net importer of oil.

The first minister turning up in the Austrian capital three days prior to the meeting was Saudi Arabia's Oil Minister Khalid Al-Falih which was assessed by the media as a sign of taking OPEC seriously.

Speaking to Bloomberg TV, Khalid Al-Falih said that “the worst is clearly behind us", adding that Saudi will continue to play its role in the global market.

In his turn, Qatari Energy Minister Mohammed al-Sada also expressed positive approach towards the oil market which is heading towards balance at the moment.

Unlike previous meetings, OPEC was more open-minded during Vienna meeting, said Nigeria's Oil Minister to reporters.

This time, Russia did not attend OPEC meeting which proves the assertion that oil freezing plan is not possible under the current circumstances.

Earlier, Edward Chow, senior fellow at CSIS said to Azernews via email that without any realistic possibility of agreeing to a production freeze or production cut, Russia's meeting with key OPEC countries risks raising and then disappointing market expectations and would have the opposite of intended effect on prices.

Many experts think that the oil freezing deal is not topical anymore. The current situation in the global oil market, namely increase in oil prices during recent months does not necessitate the urgent need for such a deal.

Oil prices began dipping in mid-2014 after shale revolution in the U.S. as the country could meet its domestic demand, and oil previously imported by the U.S was redirected to other markets causing the oil glut which pressed down oil prices in the global market.

It is not a secret to anyone that OPEC has lost its role as oil cartel controlling oil prices in the market via adjusting quotas. Now, it only produces more than third (40 percent) of the global oil output compared to decades ago when it generated the biggest chunk of the total production in the world. Currently, OPEC is pumping 32.5 million barrels per day.

Moreover, OPEC’s member states in Gulf increased their oil exports, especially to Asia in a fight to grab more market share.

By holding meetings, the organization attempts to demonstrate its unity, which actually does not exist in reality anymore.

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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva

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