Comment
June 2016
David Bizley, Editor
June
2016
Oilfield Technology
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I
n an outcome rivalling the Earth’s orbit in terms of predictability, the
OPECmeeting held on 2 June resulted in no change in policy; there will
be no cap placed on oil production.
The main (and equally predictable) obstruction to any agreement
appears to have been Iran’s refusal to do anything other than
raise
its
output. The Islamic Republic is intent on returning to its pre-sanctions
level of production, much to the chagrin of other OPEC members straining to balance national
budgets with oil prices hovering in the high US$40s. According to Reuters, Iranian Oil Minister
Bijan Zanganeh said that Tehran had no interest in supporting any kind of collective production
ceiling, arguing instead for individual production quotas for each member, “Without country quotas,
OPEC cannot control anything” he said. Zanganeh went on to insist that, going by historic levels,
Tehran was due a quota of 14.5% of OPEC’s total production, some 4.7 million bpd (from a total
32.5 million bpd), well above the country’s current output of 3.5 - 3.8 million bpd.
Saudi Arabia, OPEC’s de facto leader, was represented by its new Oil Minister, Khalid Al-Falih,
who struck a different tone by pledging that the kingdomwould be “very gentle in [its] approach
and make sure [it didn’t] shock the market in any way.” When asked whether Saudi Arabia would
bring more oil to the market, he said “there is no reason to expect that Saudi Arabia is going to
go on a flooding campaign.” Al-Falih also pointed to the recent rising oil price and added that
Saudi Arabia was “satisfied with the price movement over the last fewmonths and think[s] it will
continue to gently edge up without much intervention, assuming that more or less OPEC production
stays where it is.”
1
In other words: no change of policy.
Whilst this most recent meeting has provided few surprises, what it has shown is that OPEC no
longer appears to as much control over oil prices as it used to. Al-Falih’s comments would suggest
that everything is going as planned, but in truth there’s nothing Saudi Arabia can do to stop Iran
raising its output and driving prices down again. Indeed, as long as Iran refuses accept what it
sees as Saudi attempts to control its output, and Saudi Arabia refuses to go ahead without Iranian
agreement, the deadlock will likely continue. A cartel that can’t agree on output isn’t much of a
cartel.
Elsewhere in the oil-producing world, residents are finally beginning to return to Fort McMurray
in Alberta, Canada after a massive fire caused some 90 000 people to be evacuated, and brought
production in the Athabasca oilsands to a standstill. Reports have shown that some 500 homes
have been declared unfit for human habitation, meaning that roughly 9000 people will be unable
to return in the near future. Canada’s total oil output was temporarily cut by almost 25% as a result
of the fire, which gave a modest boost to oil prices. Production in the Athabasca oilsands is now
gradually ramping up again.
However, as one source of disruption begins to ebb away, another emerges. Nigeria’s oil output,
long subject to corruption and pipeline sabotage, has suffered a further blow at the hands of the
militant group known as the Niger Delta Avengers. The group, which claims to represent the local
people and the environment, has targeted facilities at Chevron’s Escravos terminal and damaged
the main power line, which has caused all onshore activities to be shut down. This attack and others
have cut Nigeria’s oil output to 1.4 million bpd, down from 2.2 million bpd. This cut in output has
placed significant strain on the finances of the country, which generates 60 - 70% of its revenue from
oil exports.
All of this goes to show that the oil industry is truly global - events and political decisions on
one side of the world can affect output on the other.
Oilfield Technology
looks at operations and
technology from around the world; this issue is no exception, with articles covering operations
across five continents. Get in touch if you’d like to take part.
References
1. ‘Saudi Arabia’s Gesture for OPEC Unity Meets Iran Resistance’ -
/
articles/2016-06-02/saudi-arabia-s-gesture-for-opec-unity-meets-iranian-resistance
