OPEC Deal To Limit Production Appears Unlikely, Oil Prices Drop In Response

Ahead of a scheduled meeting intended to produce an OPEC deal to cap oil production and reverse depressed prices, the prospects of an agreement between member nations appear to be waning. Experts around the world have tempered expectations for a rapid deal that would end the worldwide oil glut produced by increased production over much of the past two years. Representatives of OPEC’s member states are set to meet in Vienna on Wednesday.

The tensions that may derail the deal stem primarily from Saudi Arabia, Iran, and Iraq, according to a report produced by Bloomberg. Saudi Arabia, OPEC’s largest oil producer and the group’s de facto leader for many years, has long sought a deal that would cap oil production in order to mitigate the lower profits for all member nations that have resulted from a massive supply surplus. As the world’s single largest oil producer and the nation with the second-largest proven oil reserves, the Middle Eastern nation has threatened to walk away from the negotiations if they do not include cuts from other members, opting instead to continue a glut that few other nations can economically sustain.

King Salman of Saudi Arabia during a visit to China. Saudi Arabia is OPEC’s largest oil producer and a key player in its attempts to reach a production deal.
[Image by Lintao Zhang/Getty Images]

Despite this warning, Iran and Iraq have continued to push for an OPEC agreement that would cut production in Saudi Arabia much more than in other nations. The two countries are somewhat less dependent on oil for economic stability and have more options for riding out the current market conditions. Hardline negotiations that produce a disproportionately large or even entirely unilateral cut of Saudi production would also decrease OPEC’s largest producer’s current market share, thus benefiting other exporting nations both within and outside of OPEC.

Iran, in particular, has held to a hardline position on the matter of cuts. Sanctions imposed on it by the United States and other nations had, for many years, curtailed its ability to export oil proportionately with its ability to produce. With those restrictions having recently been lifted, Iran has increased its output significantly and now wishes to keep it above 4 million barrels per day. Iraq has thus far pursued a middle-ground solution, offering to cap its own output at its current level, but not to cut production.

With the prospects for a deal appearing slimmer with each passing day before the OPEC meeting, experts from around the world have weighed in on the potential consequences, according to Reuters. Ignasius Jonan, Indonesia’s minister of finance, expressed his uncertainty of a deal being made, saying that “the feeling today is mixed,” in reference to expectations of a workable OPEC agreement. Other experts weighed in on the effects on oil prices, with Goldman Sachs analysts stating that a failure to reach a deal could result in “prices averaging $45 per barrel through next summer.” Whether or not these predictions prove accurate remains to be seen. However, oil prices did slide by 3 percent on Tuesday amid lower expectations for an OPEC deal.

Efforts to curb oil production and raise depressed prices have also included major non-OPEC exporters, especially Russia. A Marketwatch report stated that Russia had announced its willingness to cap its own production at current levels and not necessarily to roll it back. A Wall Street Journal report also detailed a joint announcement by Russian President Vladimir Putin and Iranian President Hassan Rouhani that their respective nations would cooperate in the area of oil production outside of the OPEC negotiations.

Presidents Rouhani and Putin. Russia and Iran recently agreed to cooperate on oil production outside the context of the pending OPEC deal. [Image by Handout/Getty Images]

Wednesday’s meeting and the negotiations that preceded it are both products of a September resolution among the OPEC nations to cut production. Although that much had already been agreed upon, details of the deal were not laid out and will instead be decided on Wednesday. A failure on the part of the OPEC states to reach a practical deal could result in the abandonment of September’s decision without a viable path toward reduced production. Negotiations on Monday failed to reach a general agreement on the OPEC deal, according to another Reuters report.

[Featured Image by Joe Raedle/Getty Images]

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