1038 GMT October 14, 2019
OPEC members plan to hold an informal meeting on the sidelines of the three-day meeting of the International Energy Forum which kicks off on September 27 in Algeria to discuss restoring stabilization to the oil market.
As evident from earlier talks among the main actors of the oil market which was held on the sidelines of international gatherings, a freeze plan is the most likely option to overcome the current oil market instability. High-ranking Saudi and Russian officials talked about oil market developments on the sidelines of G-20 meeting in China, while during the Non-Aligned Movement summit, the Iranian president held talks with his Venezuelan counterpart on ways to restore stability to the oil market with higher oil prices.
Meanwhile, OPEC Secretary General Mohammad Barkindo visited several OPEC members to coordinate efforts to reach a consensus on a resolution which included the convening of an extraordinary meeting.
OPEC meeting will be held in Algeria, a country with a bright and successful precedence in holding OPEC meetings.
Algeria hosted the first meeting of OPEC heads of the states and governments 15 years after the founding of the organization and it took 25 years until the second OPEC Summit was held in Venezuela in 2000. Seven year later, Saudi Arabia hosted the third OPEC Summit. If we look at the long and irregular gaps between OPEC summits, it is clear that coming to a consensus on holding such important gatherings is not easy and Algeria's success in hosting the first OPEC summit should be seen as prestigious and a diplomatic achievement.
In addition, Algeria hosted one of the most important OPEC ministerial meetings in Oran in December 2008, when the organization was struggling with developments resembling what is going on now in the oil market which made defending oil prices above $40 difficult.
OPEC’s ministerial meeting in Oran was held amid credit crunch and downward trend in world economy. The 2008 economic downturn that was the worst economic crisis in capitalist world after the Great Recession in 1929 had a huge impact on oil markets pushing oil prices down from $140 a barrel to approximately $40 dollars.
To cope with sharp falling oil prices, OPEC held six extraordinary meetings in 2008 and in three of those meetings it decided to cut production to stem eroding prices.
In the first meeting in 2008, OPEC held its 149th extraordinary ministerial conference in Vienna on Sept. 10 in which it decided to cut oil production by 520,000 barrels per day.
At the 150th extraordinary ministerial conference in Vienna on Oct. 24, OPEC agreed on further slashing output by 1.5 million bpd and at the 151st (Extraordinary) meeting in Oran, Algeria, on December 17, 2008, it cut output by 4.2 million barrels a day.
OPEC extended Oran decision in its meeting in 2009 so that oil prices rose to above $70 at the end of the year.
Now once again while the oil market faces uncertainty with prices fluctuating above $40, Algeria is the host of another important OPEC ministerial meeting. But the question is whether the meeting will be historic once again?
This time it seems we should not be so confident about the outcome due to some reasons.
First of all, as OPEC Secretary General Mohammed Barkindo has said, the meeting will be informal and according to official Algerian news agency, it will be a "meeting for consultations and not of decision-making".
Such remarks seem to be in line with OPEC secretary general's consultations with several OPEC members so the wording of his remarks is important and shows nothing decisive is going to happen in the meeting and no specific topic is on the agenda.
Furthermore, in 2008 when oil prices collapsed from above 140 to just 40 per barrel, all OPEC members, including its biggest exporter Saudi Arabia, were determined to stop the trend by cutting production.
During the Oran meeting, OPEC cut production by 4.2 million barrels per day so that surplus production capacity of OPEC members reached more than 8 million barrels per day including 4.5 million barrels by Saudi Arabia alone.
Also we should take it into consideration that falling oil prices in 2008 was not intentional as far as it was concerned to OPEC. However, current falling oil prices is intentional and has been administered, if not OPEC, by at least some of its leading members including Saudi Arabia as a means to gain a greater market share and forcing some of non-OPEC members out of the market.
Even though market share strategy has succeeded in halting rising oil production in the US, it has not been able to reduce oil production in Russia. As Reuters reported on Tuesday, Russia's Deputy Energy Minister Kirill Molodtsov said that Russia's daily oil production touched 11.75 million barrels per day — the highest level in history.
If OPEC decides to raise prices by putting into force a kind of freeze output plan, it will help non-OPEC producers and particularly shale oil producers in the US to return to the market after losing more than one trillion dollars to OPEC over a two-year period of pursuing market share strategy since 2014.
In the meantime, some OPEC members including its African and Latin American members are dissatisfied with current level of prices and in some cases have expressed their willingness to cut oil production to hike oil prices.
Meanwhile, Iran has said it will back any initiative to restore oil market stability including an output freeze but at the same time it calls for exemption from any such arrangements until its oil production goes up to pre-sanctions level of 4 million barrels per day. A number of other OPEC members including Iraq, Nigeria and Libya are also in the process of trying to boost output, especially Libya whose officials say they plan to boost daily oil output from the current 300,000 barrels to 1 million barrels by the end of the year.
Generally speaking, special status of each OPEC member has brought about a condition that makes a consensus on any plan such as output freeze difficult, let alone cutting production.
In the past two months just talking about freezing output among some OPEC members and Russia led to a few-dollar rise in oil prices without having any real physical changes in the market. However, such talks won't help hike prices anymore unless it is translated into action.
Algeria has a good reputation for holding effective and decisive meetings pertaining to OPEC and oil market developments, but this time it's difficult to foresee the results.