What’s a Cartel To Do?
Where OPEC stands heading into a delayed meeting amidst a weaker than expected crude market and internal disagreements over the structure of ongoing production management.
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OPEC+ rescheduled its highly anticipated, planned in-person meetings, bumping them from last weekend to a virtual meeting this coming Thursday… maybe.
The official reason for the delay is ongoing disputes over proposed downward revisions to production baselines for two under-producers, Nigeria and Angola, beginning in January 2024.
The more likely reason, however, is that Saudi-led efforts to extract yet another round of cuts from the membership in response to weaker-than-expected oil market conditions are taking longer than hoped.
While a deal rollover—and extension of Saudi/Russian unilateral cuts—remains the most likely outcome, there are growing odds of a deeper official cut (perhaps, just a repeat of April’s voluntary fare?) or, as punishment in the case of a failure to achieve such consensus, that Saudi Arabia increases production unilaterally to force other members back into line.
A lot is riding on the upcoming OPEC+ meetings given the oil market’s recent weakness—and that was before expectations and intrigue shot through the roof when the producer group announced, last week, that the planned in-person meetings at its Vienna headquarters would be delayed and, ultimately, replaced with a virtual meeting this coming Thursday, November 30th.
The thrust of this write-up will focus on core OPEC-10 developments (that is original OPEC members subject to quotas) rather than non-OPEC allies because that’s where the biggest disputes currently reside and compliance is more seriously tracked—however, I plan to publish more, broader OPEC+ graphics and analysis ahead of the meeting.
The official reason for the delay is ongoing disputes over adjustments to production baselines for Nigeria and Angola, set to be materially reduced in the New Year. But, that’s a big move for a technical dispute that will, at most, have a couple hundred thousand daily barrels of market impact. While the baseline dispute is, no doubt, real and ongoing, it seems more likely that there are additional, higher-level negotiations concerning the producer group’s continued market management efforts. Indeed, on Monday morning, Bloomberg published comments from OPEC+ delegates that indicated that Saudi Arabia “is now seeking further [production] support from across the Organization of Petroleum Exporting Countries and its partners”. And, on top of all that, we’re starting to see real cracks emerge in official quota compliance.
Needless to say, we most certainly have all the ingredients for an exciting and consequential OPEC+ meeting on Thursday (if the meeting does, indeed, happen on Thursday—immediately before publication, news hit the wires that we could be looking at yet another delay given ongoing disagreement.) So, let’s dig into why Saudi Arabia might be pressing OPEC+ membership for deeper cuts, why Nigeria and Angola are resisting their revised production baselines, and the degree to which some members are once again overproducing their quota allowance.