Jun 19, 2018

What to watch as OPEC meets

Ben Geman, author of Generate

Saudi Arabian Crown Prince Mohammed bin Salman (on left) and Russian President Vladimir Putin talk. Photo: Pool/Getty Images

The outcome of this week's OPEC meeting in Vienna is "pivotal" for the future of the Saudi-Russian alliance — and by extension the broader OPEC/non-OPEC group — says smart cartel-watcher Ellen Wald, the president of Transversal Consulting.

Crystal ball: Wald predicts the meeting will yield plans for a production boost in the 300,000 to 600,000 barrel per day range. But it's not clear whether that will come from a firm agreement or relaxed compliance among producers — notably the Saudis, Russia, UAE and some others — with spare capacity.

  • Recent discussions between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman on a long-term relationship will look less important if the meeting breaks down, she says.
  • Of note: Russia and the Saudis are reportedly in agreement on an output increase but facing pushback from some members.
  • “It doesn’t mean nearly as much if they can’t get a deal done this week. Otherwise it’s just talk between two authoritarian rulers,” Wald tells Axios.
  • It's a top priority heading for Saudi Energy Minister Khalid al-Falih. “If he can get the group to agree to an increase, however small, that will strengthen this alliance between Russia and Saudi Arabia,” she says.

On Aramco: Wald does not believe the meeting will offer much insight into Saudi Arabia's hazy plans for the IPO of state oil giant Aramco.

  • That's despite frequent speculation that the kingdom is looking to achieve a certain oil price to support the listing.
  • “His (al-Falih’s) real concern right now is maintaining this alliance. He sees the IPO as separate from oil policy,” according to Wald, author of the recent book "Saudi, Inc."

On U.S. influence: Wald says an agreement to boost output will not reflect the influence of the White House, despite President Trump's public pressure on the cartel to boost production, but rather calculations about the market for additional barrels.

  • “Saudi Arabia is not going to do it for the U.S.,” she says.

Behind the scenes in Vienna, part 1: The Wall Street Journal cautions that despite outward signs of discord, the meeting will yield a successful Saudi-Russian push to boost output despite dissent from Iran and some others.

  • "OPEC is back to its squabbling ways after an unusual period of near harmony. But investors who are bidding up oil prices in the expectation of a split are misunderstanding both the history of the cartel and the current state of the oil market," the paper reports.

Behind the scenes in Vienna, part 2: Per Reuters, Harold Hamm, CEO of U.S. shale powerhouse Continental Resources, has scuttled his planned appearance at an OPEC event.

  • The intrigue: "Hamm is the third of five U.S. shale executives to withdraw from a scheduled speaking slot at the OPEC meeting in Vienna," they report.

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