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‘Share and Share Alike…’

Speculation is rife over future production-sharing agreements and oil prices have responded in kind. However, the veracity of these rumours is under scrutiny.

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So will there or won’t there be an emergency OPEC meeting? It’s the only story in town as oil prices whipped up and down over the past two weeks.

That reaction was down to General Secretary Abdullah al-Badri saying at the end of last month that the cartel was ready to embrace its rivals in order to get a deal to bring the turbulent price crash to an end. He told reporters, “Tough times requires tough choices. It is crucial that all major producers sit down and come up with a solution.” Russian Energy Minister Alexander Novak said, sure. “We’re ready to discuss the idea of cutting oil output volumes. We’re ready to consider the possibility.” Did OPEC get cold feet? It must have, as almost immediately afterwards OPEC denied any suggestion of such a meeting.

But now we learn from the Venezuelan oil minister that six member states are backing the meeting – and two non-member states. They are: Venezuela – naturally, one of the voices calling longest and loudest for a shift in tactics – Iraq, Algeria, Ecuador and the honoraries, Russia and Oman.  Venezuelan Oil Minister Del Pino stated, “The idea is to not just hold a meeting but for all the countries to attend with the intention of reaching agreement.” No small order, given they’d hoped for the same in the December annual meeting.

The sticking point could be what seems to be a deal breaker from Russia. It wants all oil-exporting countries to reach an agreement before it joins a joint initiative. Novak revealed, “This should be a consensus. If there’s consensus, it makes sense.” Saudi Arabia don’t like to be bounced into position by anyone…..particularly those outside OPEC…..particularly when it’s facing internal dissent within the group.

There were doubts about any meeting taking place or the possibility of a deal. “I just don’t think it’s real,” warned Chris Weafer at Macro-Advsory in Moscow. “So far, Russia’s history of engagement with OPEC has never amounted to anything.”

The other issue could be that Novak revealed Moscow’s hand too early in the negotiations. There was a flurry of activity following his comments, with Deputy Prime Minister Arkady Dvorkovich appearing to rule out state intervention, telling Reuters, “”If prices are at a low level for an extended period of time, a correction in investment will become inevitable and that will lead to a certain reduction in output, but that will not be a deliberate act by the state.”

It’s universally accepted that all parties in this game of chicken are feeling the pain, no-one is immune to $35pb oil. The ruble is less than half its value against the dollar with a grim recession consuming the country, Venezuela is facing ruin and as the Kingdom suffered a 23% drop in oil revenue, it has racked up a record budget deficit of $98bn. In December petrol prices in Saudi Arabia went up a staggering 50%, (Ed: a little perspective please) to 2US cents/litre.

Del Pino is doing his best to get the parties to the table. Straight after a meeting in Moscow, he flew to Riyadh to meet with Saudi officials and has issued a formal request for the emergency meeting. Perhaps playing a more tactical game than Novak, an OPEC official merely said afterwards, “Nothing really happened.” Al-Badri now knows Russia will play a hand at the table – but will he make them beg?