The statement said in view of the current fundamentals and the consensus view of a growing imbalance in 2019, the Conference decided to adjust OPEC overall production by 0.8 million bpd from October 2018 levels, effective as of January 2019, for an initial period of six months, with a review in April 2019.
To shed light on the efforts of OPEC member states to stabilize prices, the way they interact with non-members, in particular, Russia, the role of Saudi-American alliance in the decision-making process, and the future of this organization in the event of Qatar’s withdrawal, interviewed Mohammad Ali Khatibi, former director of the International affairs of the National Iranian Oil Company (NIOC) and the former Iranian Envoy to OPEC.
Full text of interview comes as follow:
What is your analysis of the 175th OPEC Summit and the agreements made at the conference?
The positive point about this summit was the efforts of OPEC member states and several non-member countries, and at the top of them Russia to manage the market in the supply sector and stop the declining prices. In fact, the main reason for convening the conference was the downward trend in prices in recent weeks which had worried oil exporters. However, there was some improvement in the prices following supply management. The fact is that all exporters will benefit from the positive effects of market stability and will suffer in case of low prices.
But the negative point here is that unfortunately, the basis for production cut in the final agreement is October 2018 output, Because this month some countries produced more than their quota, while others, such as Iran due to the sanctions produced less than its quota. For the same reason, this is not a good basis for Iran.
The point is that 800 thousand barrels should be reduced from a base that OPEC chose in October. In fact, the countries that produced more than their quota this month will not cut their output for the duration of this agreement. They will reduce from the violation of their quota, and in contrast to Iran, which has a quota of nearly 3,790,000 bpd, they have considered 3 million barrels.
Instead of taking into account the latest quota of each country, OPEC has based its report on the production of secondary sources in October. Countries with lower quotas caused a decline in oil prices by their violations during this time, and taking the month of October as a basis is not right, because with this agreement violation of these countries has been recognized and only the figure has been cut. This is one of the weaknesses of the summit.
What is the message of OPEC interaction with non-member states, especially Russia, at the Vienna conference?
The cooperation of non-OPEC countries, including Russia, to engage with the organization in order to stabilize the oil market is a positive step because the more the actors in the supply management the higher the possibility for more stability in the market.
But on the other hand, this has complicated OPEC’s decision-making process. In the past, OPEC members gathered and decided for the future of the market, but today the process is complex and all members must wait for a decision by a country like Russia to reduce or increase oil production.
For example, during the last summit Russia was against production cut, and the remaining members were waiting for Moscow’s final decision. The involvement of the United States and Russia in the internal issues of OPEC has partly complicated the decision-making process and the organization has been unable to make decisions within the short time span.
OPEC will have to work with Russia to ensure its support for a production cut. Currently, out of the 1.2 million barrels of output cut 800,000 barrels will be cut by OPEC members and 400,000 barrels by non-OPEC countries. Out of the 400,000 barrels, half will be dropped by Moscow and this issue has caused the OPEC to seriously consider the views and approaches of non-member countries.
Q: How has the Saudi-American alliance affected OPEC’s decision to cut production?
The Washington-Riyadh alliance has certainly contributed to the outcome of the meeting. The United States maintains dual positions on the oil prices. On the one hand, it is struggling to curb OPEC production cut, and on the other, it claims to be struggling to keep prices down. Of course, this is purely for Washington’s domestic consumption, so that the Americans would think the government is seeking to reduce prices and, therefore, supply low-priced gas to them.
But behind the scene, the Republicans, also known as oil men are not willing to cut prices. Because the oil industry is to operate at high prices, and as a result of low prices, the US oil industry will also slow down. They pretend to be in favour of lower prices, but in reality, they do not want to cut output.
This is a dual standpoint that we are witnessing today in the behaviour of American officials. Today, the White House is not dissatisfied with OPEC decisions, because with stable prices at a certain level, they can continue to produce and develop their oil industry. But at the same time, they will suffer from a severe fall in oil prices. Saudi Arabia, meanwhile, is instrumental in advancing US goals.
How would Qatar’s withdrawal from OPEC affect the future of the organization?
Qatar, as a small member with a low production rate, played a useful role in OPEC and naturally, no organization would be willing to lose its useful members. In recent years, Doha has taken moderate and independent positions and decisions in OPEC and was neither tilted towards Saudi Arabia nor other countries.
It should be kept in mind that the volume of Qatar’s output is not so big to harm the organization if it quits. Qatar had a production capacity of nearly 600,000 barrels, and the fact is that after leaving OPEC, they would not have the capacity and ability to increase the output. Qatar did not have a surplus capacity to use today that it is withdrawing from OPEC!
Nevertheless, it must be noted that if Doha changed its decision to withdraw it could boost the power of the independent front and weaken the rival wing. But the truth is that today, Qatar’s importance is in the production and supply of gas, and the country is known as one of the largest gas exporters globally.