The gaze continued to shift and the focus moving from the Conference Palace in Riyadh to the polling stations of Caracas to the Doha Sheraton and finally the Emirates Palace in Abu-Dhabi. But by the time the OPEC energy ministers finally sat down to deliberate their next move on the global energy chess board, and take some operational decisions, writing was very much on the wall. With prices swinging wildly, tumbling by almost 10 percent in about a week, and markets choosing to stay within the $100 mark, OPEC appeared to have little option.
And thus despite the mounting pressure and calls to lift output, including from the influential US Energy Secretary Samuel Bodman, prior to the OPEC ministerial in Abu Dhabi, signals’ indicating the course of action the oil cartel was to adopt had started to emerge even before the final die was cast.
Stunning many, the group decided to leave its original output unchanged at 27.253 million bpd “for the time being,” because the world was “well supplied” and crude reserves at comfortable levels. The group’s newest members, Angola and Ecuador, were assigned daily production quotas for the first time, of 1.9 million barrels and 520,000 barrels, respectively, bringing the combined target for 12 members to 29.673 million barrels a day. Iraq, the 13th member of the cartel is currently not bound by any output quota in view of its especial circumstances.
The decision was however, neither easy nor swift. The ministers had ominous responsibilities, torn between two conflicting and contrasting ends. Insiders indicate of the heat inside the meeting room. A lot of labor had been put behind the scenes, away from the main meeting hall and away from the media frenzy, enabling the organization to reach a consensus decision on the crucial issue. But in the ultimate analysis, OPEC ministers, decided to tread carefully — remembering the disastrous fallout from their decision to raise output just before the 1997 Asian financial crisis only to see oil prices plummet from $20 to $12 a barrel.
Reduced demand growth forecasts from both OPEC and the International Energy Agency had already softened markets, they knew. Also, the half-a-million barrel OPEC production hike from November appeared starting to kick in, alongside expectations of normal output from the United Arab Emirates after the regular maintenance shutdown of its refining infra-structure.
OPEC also appeared concerned that any increase in production could oversupply the market during the second quarter, when demand for crude tends to fall as winter subsides in the northern hemisphere. At the back of their mind was also weighing in the fact that any major global economic meltdown brewed by the US housing crisis and credit crunch could dampen the global demand for energy.
Over the years, OPEC it seem, has also mastered the art of keeping the pundits at bay — confounding the markets — until it makes it calculated move. Analysts keeping an eye on OPEC, increasingly point to the fact that it keeps the markets guessing until the last moment. To some this is not a part of the OPEC tactical ploy.
And thus neither their previous nor the current ministerial was an exception to this golden principal. Even days ahead of the group’s last meeting on Sept. 11, pundits were of the opinion that it would avoid raising production. But the cartel gave a surprise by agreeing to boost its output by 500,000 bpd from Nov. 1.
Abu Dhabi meeting was no exception too. Contrasting and conflicting signals, amid fluctuating market, kept every one confused and confounded until the end.
Only up to a few days prior to the Abu Dhabi moot, markets were overwhelmingly betting that OPEC would opt to increase the output. Comments from OPEC members had boosted such speculations, with ministers from Iraq, Indonesia, Nigeria and Kuwait then insisting they were open to increases, and even unnamed OPEC officials telling Dow Jones Newswires last week that a hike of up to 750,000 barrels a day could be in the cards.
But then the mood started to swing and swing rapidly. Confusion spread, generating more questions than answers. OPEC President and the UAE Oil Minister Mohamed Al-Hamli reaffirmed on Tuesday that there was ample oil supply in global markets, stressing “fluctuation of prices was a result of several factors that don’t have anything to do with market fundamentals.” Ministers from Venezuela and Qatar also started to suggest and emphasize there was no need to boost supplies.
On the morning of the ministerial it became known, courtesy the Iranian Oil Minister Gholamhossei Nozari, that the OPEC’s production watchdog committee had also recommended the group to maintain its current oil production targets.
However, Saudi Minister for Petroleum and Mineral Resources, Ali Al-Naimi, as usual, remained tight lipped on the issue underlining, “prices are market determined,” and refusing to get into the debate. “All options are open,” he insisted before reporters on as late as Tuesday, adding the group “will look at all the information” before reaching a decision.
But then on the morning of the moot, he showed up his cards too. In the opening session, before getting into the closed-door deliberations with co-ministers, he underlined, “there is nothing that justifies an increase or a decrease (in output).”
The die was definitely cast!
Crude market dynamics are indeed typical. They behave in erratic and wild manner. A week at times tend to be a big window, as far as market sentiments are concerned. This time also it was no different.