November 30, 2016
What is happening?
Opec oil ministers from the 14-member producer group start their official meeting around 10am (GMT) on Wednesday in Vienna as they attempt to secure the first supply deal in eight years. Meetings traditionally last for between two and eight hours, but trying to predict the duration of such a gathering is near impossible. Oil traders will be glued to their screens throughout, with billions of dollars riding on the outcome.
Opec ministers are holding a pre-meeting early Wednesday morning to try and smooth some remaining differences and set the tone for the rest of the day.
A press conference — known for its largely uncontrolled nature — will also give ministers a chance to voice their positions publicly to hordes of journalists before the formal discussions get under way.
After the meeting the result is formally announced in a reading of the communique — a statement that will sum up the outcome of the day — and a final press conference. But the result has normally leaked earlier than the press conference, which is currently scheduled, though subject to change, for 3.00pm London time.
What does Opec need to achieve?
The cartel is looking to finalise a deal to cut its oil production from a near record 33.8m barrels a day to 32.5-33m b/d, preferably the lower end of that range.
A supply reduction is needed to try and avert a third year of oversupplied oil markets, which have seen prices more than half since mid-2014 to less than $50 a barrel.
Falling prices have hammered the budgets of members, including Saudi Arabia, the world’s largest oil exporter, which pushed the group into a pump-at-will policy two years ago. That strategy was an attempt to try and stave off the threat from fast-rising US shale and high cost producers.
The plan has only been a partial success, however, and two years of low prices have left Riyadh’s budget in a perilous state, while members such as Venezuela and Nigeria stand on the precipice of economic crisis.
Are there any sticking points?
How Opec distributes cuts among its members has hung over the group since a provisional agreement to curb supply was reached in Algiers two months ago.
Iran, which is finding its feet after years of Western sanctions, initially said it should be exempt like conflict-ridden Nigeria and Libya. Tehran has since softened its stance saying it will freeze its production, but the level has been problematic.
While Saudi Arabia has said its arch rival should freeze at its October production levels of around 3.7m b/d it has hinted privately it could be willing to allow 3.8m b/d. Iran has said it would cap its output once it reached pre-sanctions levels close to 4m b/d, arguing those countries that have boosted output over the past two years, namely Saudi Arabia and its Gulf allies, should shoulder the largest burden of any cuts.
Iraq, meanwhile has until recent days questioned the so-called “secondary source” data that Opec uses to assess members’ production. While it now accepts its use, Baghdad has said it will only cap its output at this level, while Saudi believes it should be part of any cuts in order for it to be credible.
To reach a deal these points will need to be overcome. But while they sound complicated in reality they amount to only a couple of hundred thousand barrels a day at most — a small fraction of the aim of the overall deal.
What if there is no deal?
No deal could trigger another sharp drop in oil prices and leave them depressed well into 2017.
Oil companies from majors like BP and ExxonMobil to smaller specialists like US shale operation Continental Resources will probably have to endure a longer period of sub-$50 oil, while Opec members risk slipping further into recession or worse.
What would it mean for Opec?
The group’s reputation would take a hit. It has been working towards a supply deal for nine months and failure will raise pointed questions about its credibility and ability to influence markets.
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