When Iran’s oil minister stormed out of an OPEC confab on Thursday night, the alliance of producers led by Saudi Arabia and Russia was in danger of losing control of the market.
Less than 24 hours later, they had reasserted their authority, for now. Prices that had breached $80 a barrel in the run-up to the meeting, prompting public admonishment from US President Donald Trump, traded back at $75.
Friday’s agreement was a fudge in the time-honored tradition of OPEC, committing to boost output without saying which countries would increase or by how much. It gives Saudi Arabia the flexibility to respond to disruptions at a time when US sanctions on Iran and Venezuela threaten to throw the oil market into turmoil.
“It is very clear that Saudi Arabia, worried about prices running higher going forward, is trying to put in place a near-term cap on prices,” said Yasser Elguindi of Energy Aspects Ltd., a consultant. “Having secured its floor, Riyadh would like to see a near-term ceiling of $75.”
That’s a shift from only a few months ago, when the kingdom had made clear it was comfortable with prices at $80.
“We know prices in the three digits were causing instability” in 2011-2014, Saudi Oil Minister Khalid Al-Falih said on Friday. “I can tell you that as we approach that range of prices, we feel that instability would be back.”
The deal could add about 700,000 barrels of daily supply from OPEC and non-OPEC producers, delegates said. Russia will probably raise output as much as it can while Saudi Arabia attempts to adjust its production to manage prices.
Some traders are far from confident that all those barrels will materialise. The alliance faces multiple risks: the loss of Iranian and Venezuelan exports because of US sanctions, volatile environments in Libya and Nigeria, and hurricane season in the Gulf of Mexico. At the same time, there is a shrinking amount of spare production capacity globally.
“They cannot control the upside at the moment,” tweeted the market’s most vocal bull, hedge-fund manager Pierre Andurand. “Same as in early 2008.”
Like so much, the road to OPEC’s production increase began with a tweet from Trump, complaining that oil prices were “artificially very high” and blaming the cartel.
Trump was not alone in putting pressure on OPEC to respond to rising prices. The US president’s intervention was followed by more diplomatic calls from other top oil-consuming countries.
India’s petroleum minister rang Al-Falih last month and expressed “concern about rising prices.” A week later, it was the head of China’s National Energy Administration on the phone with the Saudi oil minister, asking Riyadh to guarantee adequate supplies.
Those interventions helped trigger a shift in the Saudi minister’s thinking, according to people familiar with the matter. On the same day that Trump tweeted in April, Al-Falih insisted that the world had the capacity to weather higher prices and he was aiming to maintain the OPEC+ deal until the end of the year, according to several OPEC ministers and delegates.
But after the consumers’ interventions, his tone shifted. “Our customers have spoken loudly and we must listen to them,” he said on Thursday.
It wasn’t just the Saudis who modified their stance in response to buyers’ concerns. “This agreement that we reached is a testimony that we care about the consuming countries, and we listen,” said United Arab Emirates Energy Minister and OPEC President Suhail Al Mazrouei.
Similar concerns were motivating Russia. Alexander Novak, its energy minister, spent Thursday morning in Moscow at a government meeting discussing the domestic energy market, where rising gasoline prices have caused concern, before flying to Vienna for negotiations with Saudi Arabia and other OPEC members. After a brief return to Russia, he jetted back to the Austrian capital on Saturday morning to give the final sign-off to the oil-production increase.
It was almost exactly a month ago in St. Petersburg, at a 1 am meeting at the Four Seasons hotel, that Al-Falih and Novak hashed out the broad outlines of a deal to increase production. After a few hours’ sleep, the Saudi minister announced to the world that a supply increase at OPEC’s June meeting was “ likely”.
There was more persuading to be done. Iranian Oil Minister Bijan Namdar Zanganeh, arriving in Vienna on Tuesday, was dismissive of the chances of a deal.
What followed was three days of day-and-night diplomacy in the luxury hotels along Vienna’s famed Ringstrasse, and in the chandeliered halls of the Hofburg palace.
While Al-Falih met his counterparts from countries such as Iraq and Venezuela in the palace, in another room nearby, Al Mazrouei was sitting down with the Iranian minister.
Rather than making proposals of their own, the Saudis asked others what they wanted to do, according to one minister at the talks.
They slowly convinced almost everyone that the only question was not whether to increase output, but by how much. Iran remained resolutely opposed.
On Thursday evening, back at OPEC’s headquarters, Zanganeh stormed out of the pre-OPEC meeting, saying he wouldn’t support a deal.
Enter Prince Abdulaziz bin Salman, Saudi Arabia’s state minister for energy affairs. A veteran of challenging negotiations, the snappily dressed prince is skilled in the Byzantine diplomacy and backroom deals that have characterized OPEC since its founding almost six decades ago.
After about 45 minutes of talks on Friday morning, Al-Falih and Abdulaziz emerged from a meeting with Zanganeh with the outlines of a deal. And in the afternoon came a vaguely worded communique that pledged to “strive to adhere” to the production levels originally agreed to in December 2016.
“It wasn’t easy, but everyone found a way to navigate the obstacles,” said one of the ministers at the talks, who asked not to be identified because the discussions were private. “The Iranian resistance was strong and the communique is the art of finding the middle ground.”