Is Norway an oil addict?

On June 16, the (from Libya) OPEC General Secretary Abdalla S. El-Badri gave a remarkable opening speech at the 21st World Petroleum Congress in Moscow, in which he invoked the stability of the oil markets as the common goal of all actors gathered: Oil consumers such as oil producers, OPEC members and non-OPEC members, including that of host Russia. He said:

Our focus should be on maintaining market stability. That was central to the OPEC decision last week to keep OPEC oil production at the level of 30 million barrels a day. That's what the market needs. We see a balanced and stable oil market today.

And if we look at the market indicators, we expect the same for the rest of 2014. There is steady growth in demand and enough supply to cover it; Both with supplies and free conveying capacities at a comfortable level.

Stability is central to everything we do. It is the concern that unites us all. And this is best achieved when all stakeholders understand each other better through increased dialogue and cooperation. I am sure this will be seen during the congress week.

A few days after this speech, the most recent oil price collapse began, which caused the oil price to drop from US $ 115 to below US $ 80 within 5 months.

Something doesn't go together.

Loopholes in the cartel

The German state maintains a Federal Cartel Office, whose tasks include enforcing the cartel ban in this country:

If competitors coordinate their behavior in a market with one another in order to restrict or eliminate competition, this is called a cartel. [...] Cartel agreements regularly lead to excessive prices and falling product quality.

OPEC is an openly run cartel: everyone knows that it exists and that its members pursue the goal of generating the highest possible revenue for themselves by coordinating oil production. In addition, this cartel is of global importance, recognizable by the traded substance (oil) that is required worldwide, but also by the fact that not individual companies, but several countries represent their interests in this body. Currently these are the founding members of 1960 Iraq, Iran, Saudi Arabia, Kuwait and Venezuela, as well as Qatar, Libya, Algeria, Nigeria, Angola, Equador and the United Arab Emirates. The cartel had its greatest success in the 1970s, when it triggered the first two major oil crises by offering its 55% market share at reasonable price increases.

However, history as well as the current situation shows that by no means all OPEC members share the same interests in every case. One only needs to remember the attack by Saddam Hussein's Iraq on the neighboring state of Kuwait in 1990 or the current proxy war between the Sunni-dominated Saudi Arabia and the Shiite-dominated Iran in Syria. In each case countries were and are hostile to each other, which as OPEC members make common cause.

Loopholes in the US World Conspiracy

The current media consensus is largely that the fall in oil prices is caused by Saudi Arabia. The country either tries to secure its market share or to exert political influence on other countries. The second component is ascribed to US fracking success, but here too the interests are anything but clear: on the one hand, the low oil price gives oil-addicted US consumers leeway in the wallet, on the other hand, the oil price is torpedoing and damaging the business model of fracking companies so in the long run the freshly won self-sufficiency opportunities in the USA. In any case, this applies if the often reported production costs of US $ 60-80 per barrel for US fracking are correct. However, it is questionable what the real interest of Saudi Arabia looks like. Because the ultra-orthodox monarchy is regularly considered a close ally of the USA - does it therefore sound logical that the Saudis of all people want to attack the US fracking industry with an expensive price campaign?

But the price of oil is also relevant outside of purely economic issues: it quickly becomes political. On the one hand, the oil price collapse is putting pressure on at least three global US competitors: Venezuela, Iran and Russia. Russia has announced that it suspects that the collapse in oil prices is due to cooperation between Saudi Arabia and the United States. On the other hand, this pressure is driving the affected countries to look for new partnerships. What if Russia became a member of OPEC and would enforce its price interests together with other oil-exporting countries? After all, according to Russia's Energy Minister Alexander Novak, Russia is thinking about cutting oil production. Or if Russia founds a "second OPEC" and agrees on production quotas with individual countries? Should such collaborations succeed, a construct might arise that is not exactly conducive to the American lifestyle.

But this is exactly what there are signals that could reach their preliminary climax in the coming week, because on Thursday, November 27, 2014, OPEC will meet again in Vienna - with Russia very close by.

Oil diplomacy in full swing

Venezuela, Russia and Iran are the big losers of the current oil price slump due to their high dependency on sales revenues. Diplomatic efforts are therefore already in full swing before the OPEC meeting. Bloomberg reports that Venezuela's President Nicolas Maduro is seeking cooperation with non-OPEC members. The Venezuelan foreign minister therefore met six energy ministers, including the Russian energy minister Alexander Novak. Another meeting of this type is scheduled for next Tuesday, two days before OPEC meets for its meeting. And at the insistence of Venezuela, it was relocated from Caracas to Vienna, so that all the key players can be found in the Austrian capital in the same week.

Obviously, oil diplomacy is in full swing. Venezuela seems to be looking for cooperation partners outside of OPEC in order to make its position clear at the OPEC meeting with increased power. And from Venezuela's point of view, this can only be: curb oil production in order to raise the oil price above the (now) usual US $ 100 limit. Russia is likely to share this wish, as it needs more US $ 120 than US $ 100 to stabilize the national budget (see: Telepolis: Why the price of petrol must not fall). Igor Setchin, head of Rosneft and Putin's confidante, will also visit Vienna.

There were also signs of closer cooperation between Russia and the cartel in 2011, for example. Qatar's oil minister would have liked to see Russia in OPEC, even if he judged the chances of doing so slim. Saudi Arabia also offered OPEC membership to Russia in the summer of 2013 through Bandar bin Sultan, the head of the secret service at the time. However, the meeting of Bandar and Putin at that time was commented on in very strange ways. There was talk of a "secret deal" which provided for price and volume agreements for oil production. Nothing US politicians would like to see. The report was launched from Russian sources at the time and gets a stale aftertaste if you associate it with the fact that Bandar bin Sultan was removed from the secret service in April 2014. The main purpose of the conversation between Bandar and Putin at the time was probably to cut Russia's support for the Syrian head of state Assad. At the time of the meeting, Russia demonstratively sided with Assad, who is the last remaining ally from post-Soviet times in the Arab region. Ultimately, because of Russia's stance, the USA failed to take consistent action against the Syrian state power, with the result that Syria has fallen in parts to the ISIS extremists and has developed into a "failed state" with a refugee problem that now extends to Germany .

Oil, Money and Politics: Russia Under Pressure

The fall in prices is putting Russia under massive pressure. It is quite possible that a coordinated Saudi-American oil policy caused the price decline with which Russia is to be made compliant. If Putin drops Assad and shows that he is ready to negotiate in the face of sanctions and impending financial and economic problems, including with regard to Ukraine, the oil price could perhaps recover faster than one thinks. For political, not economic reasons. However, the current situation could also lead to new, unfamiliar constellations. If the world's largest oil exporter, Saudi Arabia, makes common cause with the world's largest oil consumer, the USA, and deceives the interests of the other OPEC members, it could (once again) lead to heated discussions in Vienna. If Russia conducts cooperation talks with dissatisfied OPEC members at the same time, new alliances could emerge. Politics is sometimes a surprising business.

It would be interesting to know what will happen at the World Petroleum Congress in Moscow in June Behind the scenes has been discussed.

11/21/2014 (Norbert Rost) Category: Analyzes · Tags: OPEC, russia, saudi arabia, Syria, Venezuela · 14 Comments »