With oil trading near $30 a barrel, calls for orchestrated output cuts to quell global oversupply have intensified this week. Trouble is, none of the world’s largest producers, most notably Russia and Saudi Arabia, have shown they’re ready to make a move.
OPEC Secretary-General Abdalla El-Badri called on all countries, both inside and outside the group, to join efforts to revive oil prices. “It should be viewed as something OPEC and non-OPEC tackle together,” he said on Monday.
Iraq’s oil minister said on Tuesday that Saudi Arabia and Russia, the world’s two largest exporters, might be ready to become “more flexible.”
Yet there’s little sign the countries themselves are ready to reach an agreement despite the economic damage wrought by the lowest prices since 2003. Long-standing obstacles remain — Saudi Arabia’s desire to defend market share, Russia’s inability to cut production in winter months — and analysts say talk of a deal probably reflects the hope of producers in pain rather than the expectation of concrete action.
The two countries’ opposing views on Syria, where Russia is President Bashar Al-Assad’s closest ally and Saudi Arabia wants him gone, present another significant diplomatic obstacle.
“It will not happen — everybody is winking, hinting,” said Kamel al-Harami, an independent oil analyst and former executive of state-owned Kuwait Petroleum Corp. “The Saudis won’t do it without the Russians. Unless Russia accepts to cut, I don’t see it happening.”
The signs from Saudi Arabia and Russia, which together with the U.S. are the only countries pumping more than 10 million barrels a day, are that a deal isn’t under consideration.
In Riyadh, the head of the state-owned oil company, Amin Nasser, told an industry conference on Tuesday to wait until the end of 2016 to see prices recover. Russian Deputy Prime Minister Arkady Dvorkovich said in Moscow that the country would be able to keep production stable for the time being, even at current prices.
Those comments ran counter to Iraqi Oil Minister Adel Abdul Mahdi, who said a deal was possible, without providing any details.
“This flexibility should be finalized, and we should hear some solid suggestions coming from all parties,” Abdul Mahdi told reporters at a conference in Kuwait City.
There is a precedent for a surprise agreement to turn around a chronically oversupplied oil market. When oil plunged to $10 a barrel in 1998-1999, Saudi Arabia and other oil producers for months said they wouldn’t to production. But behind the scenes, their diplomats were meeting in secret in cities from Miami to Madrid to arrange a series of output curbs that ended the rout.
Yet an agreement between OPEC and rival producers to rein in volumes has proven elusive as all parties seek to maintain their market share. Venezuela has repeatedly requested an emergency meeting of the Organization of Petroleum Exporting Countries to discuss production cuts, but others have rejected it.
Saudi Arabia, where energy policy is made against the backdrop of an increasingly bitter regional power struggle with Iran, has insisted that cuts can only happen with the cooperation of non-OPEC members. The fear: Iran, recently free of sanctions on crude output, will increase production as they cut back.
With OPEC effectively abandoning its output ceiling in December, Russia pumping near record levels and U.S. shale fields proving more resilient than forecast, the global surplus has continued to swell and prices have continue to fall.
“It is crucial that all major producers sit down to come up with a solution to this,” El-Badri said in London on Monday.
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