An OPEC meeting in Vienna ended today with no official agreement reached on whether or not to cap output levels in order to prevent another price crash.
Following the meeting, prices for Brent Crude oil slipped to just below $50, a benchmark reached only a few days before.
However, despite the lack of official consensus on output ceilings at the meeting, the new Saudi energy minister, Khalid Al Falih, insisted that prices were still set to increase steadily.
“The worst is clearly behind us”, Falih told a Bloomber reporter. He said: “We are happy with the price movement over the last few months.”
He added: “We think that it will continue to gently edge up without much intervention assuming that more or less OPEC production stays where it is.”
He insisted that maintaining OPEC production levels would not necessarily require a hard cap or a freeze but rather could simply come as the result of “better stewardship or responsible action by individual producers”. How it would happen, he said, is irrelevant, adding that the “fundamentals” of supply and demand, are what are more crucial.
And the current trend, Falih said, with demand once again increasing, and supply “having declined in some regions”, looks to be one that supports steady price growth on its own.
Oil prices are only just recovering from a huge crash, with prices having dropped from close to $120 a barrel to $29 a barrel over the course of around two years. Several factors including the availability of cheaper alternatives like US shale were to blame, as well as Iran’s re-entering the market as a key player following the lifting of sanctions. Throughout, OPEC refused to implement any kind of output caps that would have tightened supply and pushed prices back up, and they are still sticking to their guns.
Falih said that, with these latest price increases up to around $50 per barrel, he felt as though the market was “rebalancing”, and maintained that despite the lack of an official output cap, Saudi Arabia would not embark on a “flooding campaign”, aggressively increasing production.
The head of the Petroleum Policy Intelligence, Bill Farren-Price, said that part of the Saudis’ resistance to any kind of output freeze comes as part of their desire to retain market dominance.
He said: “Now the market is starting to rebalance the Saudis are moving to reinstate control. In many ways they are pushing at an open door now supply is falling and demand is rising strongly. They can say that their strategy has been a success.”
Iran, who are the Saudis’ biggest regional rival, have been resistant to an output freeze as they work to regain their market position following years of sanctions from the West. They have repeatedly called for output quotas to be implemented on a country by country basis, saying: “without country quotas OPEC cannot control anything”.
Iran believe that they should be responsible for 14.5% of OPEC’s total production, which would involve an increase of their output levels by around a million barrels a day.
Dewardric McNeal, head of consultancy firm Longview Global said: “Despite the deep mistrust and proxy battles raging between Saudi Arabia and Iran, we are watching to see if they can rise above their differences for the sake of Opec and its members.”