The next meeting of the Organization of the Petroleum Exporting Countries is scheduled to begin on June 2. Few believe that the meeting will lead to an agreement to lower output to boost oil prices further. Saudi Arabia, OPEC’s largest producer and de facto leader, has already indicated that it will not risk its market share to prop up other OPEC members’ economies. Without Saudi participation, any proposal for output cuts is dead on arrival.
Oil prices reached their lowest in a decade when prices hit $27 per barrel in January. Saudi Arabia was blamed for the price crash after increasing production to an all-time high to fight for market share with higher-cost producers. Iraq and Iran also kept pushing production higher. Oil prices have recovered to around $50 per barrel in recent weeks, but are still far below the $115 seen in June 2014.
The drop in oil prices badly hurt fellow OPEC members. Members Venezuela and Nigeria are now facing economic and political crises as they do not make enough money from oil revenues to continue powering their economies. The fall in prices has also hurt non-OPEC members, with Russia having to dip into its emergency reserves and many U.S. shale companies halting production as unprofitable. The U.S. alone has lost 900,000 barrels per day since peaking last year.
Saudi Deputy Crown Price Mohammad bin Salman, who has appointed himself ultimate head of oil affairs, has said Saudi Arabia is no longer willing to play the role of price stabilizer in the oil market. This means that OPEC members will continue to produce as much oil as they can, battling for market share. Prince Mohammed also said that Saudi Arabia may raise production further if other members don’t restrain their output increases.
Now, Saudi Arabia is embarking on an extraordinary plan to gradually shift its economy away from oil, which is almost its sole source of revenue. As part of that effort, Prince Mohammed is driving plans to sell a small stake in Saudi Aramco. Some analysts see this move as an indication that the era of fast oil growth might be ending.
All eyes will be on new Saudi Energy Minister Khalid al-Falih at the OPEC meeting. He arrived in the Austrian capital on Monday, three days before the meeting is due to start. As former chief executive and then chairman of state-owned Saudi Aramco, Falih has long been one of the most powerful men in the oil industry. Falih has a much larger portfolio, overseeing energy, industry, mining, atomic power and renewables, than his predecessor, Saudi oil minister Ali al-Naimi.