OPEC 177th Meeting; Effective and Non-Controversial
November 2019 Issue No.89Negar SadeqiThe 177th meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC) and the 7th OPEC and non-OPEC Ministerial Meeting were held in Vienna on December 5 and 6, respectively. OPEC and non-OPEC partners, known as OPEC+, agreed to remove 503,000 b/d from their output and no longer take gas condensate into crude oil export calculations. OPEC+ member states also agreed to consider secondary sources as reference prices. Iran, Venezuela and Libya are still exempt from any reduction in their production. Iran’s Minister of Petroleum Bijan Zangeneh told reporters in Vienna that his country would supply as much oil as it can, should US sanctions be lifted.Compared with the two previous conferences, the 177th meeting of the OPEC experienced more calm. There was no tweet from US President Donald Trump before or after the meeting. Meantime, the OPEC Secretariat had banned any interview with OPEC ministers in the conference hall or during ministerial meetings to avoid any controversy. However, the outcome of the OPEC+ meeting was not so neutrals 2019 began, OPEC and non-OPEC allies agreed to cut their output by 1.2 mb/d (800,000 b/d for OPEC and 400,000 b/d for non-OPEC). Now they have agreed to further remove an extra 503,000 b/d from their production. Therefore, the OPEC+ production will be cut by 1,703 mb/d by January 2020. OPEC producers will account for 1.372 mb/d output cut and non-OPEC states will account for the rest. Iran, Venezuela and Libya are not required to cut their production. The US-China trade war, shale production, unrest in Iraq, increased oil production by non-OPEC states like the US, Norway, Brazil and Guinea, coupled with the growing global demand for oil and weakened economic growth, has not allowed any bright perspective of the future of oil. That is why OPEC member states agreed to hold an extraordinary meeting on March 6, 2020 in Vienna, at the OPEC headquarter, to see if they should extend the production cut for another three quarters. In case the current production cut, envisaged for the first quarter of 2020, is approved during the upcoming extraordinary meeting, the OPEC+ production cut would continue into 2020. The OPEC+ agreement to rely on secondary sources as the reference price was another point in the Vienna meeting. But why does it matter? Since 2017, when the OPEC+ entity took shape, the reference for pricing and output cut have been the point of disagreement between OPEC and non-OPEC producers. The OPEC reference was secondary sources, while non-OPEC relied on their oil or energy ministries for oilo Unreasonable Output CutUS oil sanctions against Iran has drastically cut Iran’s oil exports. Iran’s minister of petroleum touched on this issue, saying: “Iran is under unlawful US pressure due to certain conditions and involuntary cuts. Of course, Iran is not alone. There are also other nations that are producing below their OPEC-set quota. That is why a number of countries are taking advantage of this opportunity for overproduction.” Zangeneh reiterated his previous positions, saying: “If sanctions are lifted, we will not accept any restrictions for Iran’s production and we will produce at our maximum capacity. In the future, the countries that have had overproduction should cut further their output. That is our nation’s right and I lay emphasis on it here.” “On behalf of the Iranian nation, I announce that I will not accept cutting even a single unreasonable barrel [of production cut]. Those who take advantage of Iran’s partial absence in the oil market and have oversupplied the market should further cut their output in the future in return for the current overproduction. They should not expect Iran to join the quota system as soon as sanctions have been lifted,” he said. Zangeneh said: “It is our sovereign right. We expect this issue to be taken into account in the future and we will definitely act in this way.”pricing. OPEC states believed that a unique source had to be determined for oil price setting as the ministries were not reliable enough for that purpose. After two years of deliberations, OPEC and non-OPEC states agreed that secondary sources set oil prices. That was a success for OPEC. Like OPEC, non-OPEC allies will also examine their statistical data based on crude oil production. Until recently, OPEC collected its data from crude oil production, while non-OPEC calculated crude oil and gas condensate. Non-OPEC leader Russia is producing 800,000 b/d of condensate and it insisted on the removal of condensate from OPEC+ production calculations. Russia had filed its demand prior to the 177th meeting of the OPEC Conference. Were gas condensate included in the Russian oil production cut, it would lose a big part of its oil revenue. This clause is a success for Russia and non-OPEC producers. Zangeneh said it was unfair to demand Russia do what OPEC does not have to comply with. The Declaration of Cooperation agreed earlier between OPEC and non-OPEC stipulates that the basis for oil production needs to be the same for all oil producers.The Algerian minister of energy will start serving as OPEC’s rotating president as of 1 January 2020. The Conference appointed Gabon’s Governor for OPEC, as Chairman of the Board of Governors for the year 2020, and Mr. Hossein Kazempour Ardebili, IR Iran’s Governor for OPEC, as Alternate Chairman for the same period.