I asked Mr Hose de Vasconcellos, the Angolan Oil Minister if he was still selling oil and he just laughed and indicated all was well. At previous meetings, he confirmed that he had lost much of his business with the US and was moving towards business in Asia – APR, which is where they all seem to be heading.
The usual market conjecture was played out beforehand, and no one wants to miss a surprise from OPEC. Judging by the dialogue over the last two days, the level of optimism has seemed genuine, and therefore everyone was confident that there would not be a significant change in policy. There was even a suggestion that OPEC might go even further and propose an increase in output to accommodate, perhaps Iran, and any other member that was hoping to bring more to the market. This would be part of the Saudi strategy to exert further pressure on the market and particularly the US shale producers and Russia.
Saudi is the true leader of OPEC and will always have the following of the Gulf States while others will, often reluctantly, have no alternative but to follow. Saudi’s role is well managed by the long-term Minister Ali Naimi. The only concern now is that he will probably retire soon, aged around 80, and be replaced with someone younger with far less diplomatic and industry experience than Ali Naimi and keen to prove himself. With that comes the risk that authority within OPEC may be curtailed or lost. For now, that is a concern to put to one side.
The meeting was opened by HE Mohammed bin Saleh Al-Sada, the Alternate President of the OPEC Conference. He reminded us that at the time of the last meeting, the price of oil stood at $77 but soon fell to $45 in the new year following OPEC’s decision to leave output unchanged, but since them we have seen some significant improvement. OPEC does not believe that the 60% fall in price was attributable to fundamentals alone but supported by speculation. From my perspective, I should be surprised to hear that some producers were not a party to such speculation either! With market knowledge in advance of any change in conditions, opportunities arise.
The market is oversupplied and the US commercial crude stocks in April were reckoned to be 24% higher than they were a year ago while the fall in price has resulted in the postponement of some investment and a drop in the US rig count. On the positive side, global growth is forecast to increase at 3.3% supported by the lower oil price and global demand for 2015 is forecast to rise by 1.2mbpd and increase on the 1mbd for 2014. Most of this will come from non-OECD countries.
The increase in oil supply from non-OPEC countries will be below 700,000bpd, only one-third of the amount produced in 2014 and no doubt a direct result of the drop in rig count while lower growth is also forecast from North America and Canada. So for OPEC, this indicates a more balanced market in the second half of the year with demand for OPEC oil estimated at 30.30mbpd in q3 and 30.7mbpd in q4. They seem happy with this, for now.
During the open session before the conference began, I was able to have a few words with two of the Iranian delegates, although not at the same time. They are obviously expecting sanctions to be lifted, but neither would even estimate when that would be. However what I did learn was that Iran is currently exporting 1.1mbpd and within six to eight months of sanctions being lifted, the plan is to increase that figure by another 1.2mbpd bringing the total export figure to 2.3mbpd. This is perhaps an ambitious target but one they are aiming for.
