After a week of ministers frantically scrambling around Vienna for conferences, committee meetings, and one-to-one sit-downs, it seems as though things have finally come to a halt. OPEC and its allies have a deal to increase production, even if nobody can agree by how much.
In the present day, countries like Venezuela, Libya, and Angola have been unable to produce enough crude to hit their quotas. Thus, the group involuntarily removed 2.8 million barrels off the market and prices soared.
Facing pressure from the big oil importers of the world, the US, India and China, Khalid Al-Falih, the minister of energy from OPEC's largest producer Saudi Arabia, took matters into his own hands. "I will be sensitive to them, but at the end of the day I think our first and foremost responsibility is to our consumers and the market," said Al-Falih in an interview.
As the meeting neared its end, the ministers of both Nigeria and Iraq said the increase would end up being capped at about 600-770 thousand barrels a day. As the news spread to the various corners of the globe that the increase would be less than expected, the market rallied by $4-5 dollars a barrel. Even Iran, which fought to go back to the original targets signed at the end of 2016, walked out with the same impression.
"I think it is acceptable and rational. It is legal because we have a valid resolution until the end of December (2018). We have agreed to comply 100 percent with the previous and valid resolution that we have," said Bijan Zaganeh, minister of petroleum for Iran.
That said, Iran's OPEC governor has warned Saudi Arabia to stick to the terms of its deal rubber-stamped on June 23 and refrain from exceeding its allocated output quota.
"If Saudi pumps above its allocated quota it is in breach of the contract with OPEC," Hossein Kazempour Ardebili said in a telephone interview Wednesday.
This means America's recent grasp of the oil market, in which production has surged to 3.3 million barrels a day, may need to take a backseat, affecting the global oil supply equation over the next year. In an interview at OPEC's Oil Seminar last week, industry godfather Scott Sheffield said that a lack of pipeline capacity to export crude to customers will force producers to shut in wells. This is even more concerning for US producers since the increased production will lower global prices but increase costs for them, effectively slashing margins.
Additionally, the alliance OPEC struck with Russia two years ago may become more permanent. The so-called OPEC+ group of 24 countries is working on creating a new body with a charter and permanent secretariat. This is also a factor behind why the oil-market partnership between Russia and Saudi Arabia may be here to stay.
What's left to see is whether all member states, particularly Saudi Arabia, hold true to the agreed terms. OPEC's President Mohammed Barkindo could face the choice of calling an extraordinary meeting of the group if the agreement was found to have been breached when its monitoring committee next meets September 22-23 in Algiers to review progress.