OPEC Secretary-General Warns Against Delaying Oil Production Cuts
Cartel’s leader says there will be dire consequences for industry if OPEC doesn’t proceed with plan
VIENNA—The morning after OPEC officials deadlocked about how to implement oil-production cuts, the cartel’s leader warned of dire consequences for the oil industry if the group doesn’t move forward with a plan to reduce output.
In a speech here Saturday morning, Mohammad Barkindo, secretary-general of the Organization of the Petroleum Exporting Countries, said “the recovery process [in rebalancing oil markets] has taken far too long and we cannot risk delaying the adjustment any further.”
OPEC nation representatives are meeting at the group’s headquarters here with producers outside the cartel to discuss a tentative deal to reduce a global oil oversupply. The glut, caused by a flood of production from both OPEC and the U.S., has depressed crude prices for over two years, hurting petroleum-dependent economies from Venezuela to Saudi Arabia.
OPEC agreed last month in Algiers to reduce its production by between 200,000 and 700,000 barrels a day—about 1% to 2%—to reduce high oil inventories. But OPEC officials on Friday couldn’t agree on a framework for implementing the cuts, with members Iran and Iraq refusing to agree to cut or even hold steady their burgeoning output.
“Anything short of implementation of this accord could lead to the elongation of the rebalancing process,” Mr. Barkindo warned Saturday.
The discussions this weekend are supposed to pave the way for a detailed proposal submitted to oil ministers from OPEC’s 14 nations on Nov. 30. Instead, Iraq and Iran’s insistence on exemptions have emerged as a big sticking point Friday, threatening the agreement’s viability.
Iran wants to keep pumping until it reaches 4.2 million barrels a day, an increase of 400,000 barrels a day from current levels, according to an Iranian oil official. Iraq says it needs to keep pumping to generate revenue for an intensifying war against Islamic State. Iraqi officials didn’t respond to requests for comment Saturday.
But Saudi Arabia—the group’s kingpin and regional rival to Iran—insists Tehran should shoulder at least part of OPEC’s efforts in rebalancing markets, according to oil officials in the group. Exempting Iraq and Iran would put pressure on Saudi Arabia, OPEC’s largest producer, to cut more output than the kingdom wants to.
A lack of action so far to revive flagging oil prices is leading officials such as Saudi oil minister Saudi oil minister Khalid al-Falih to warn that oil-industry spending cuts caused by low prices will lead to supply shortfalls soon. According to energy consultancy Wood Mackenzie, over $1 trillion in oil-industry capital spending has been slashed since oil prices began falling in 2014.
Mr. Barkindo echoed that view Saturday. Failure to implement the Algiers deal will lead to “further deterioration of financial conditions and setbacks in investments extending into a third year, which would be unprecedented,” he said.
The Algiers agreement was also dependent on producers outside the group joining to the curbs. Russia, which doesn’t belong to OPEC but produces more crude than any other country, has tentatively agreed to cooperate but without specifics.
But as they arrived at the cartel’s Vienna headquarters Saturday morning, non-OPEC producers refused to provide detailed commitments to turn off the spigots.
Senior Brazilian oil official Marcio Felix told reporters he was there to “listen” and his country intended to boost production next year. A Kazakh official said the only outcome he expected was to push oil prices higher.
Azerbaijan Energy Minister Natig Aliyev said his country hopes “some measures will be taken to stabilize the oil market” but declined to say how much his country could afford.
“Everything will depend on the position of countries, primarily OPEC members such as Iraq and Iran,” Mr. Aliyev said.
Oman, another non-OPEC producer attending the meeting Saturday, is taking a similar stance. The Persian Gulf producer is willing to reduce production as part of a broader deal with OPEC and producers from outside the group, but won’t commit to a specific size of cut until the cartel reaches a solid agreement, a senior Omani official said.