Dubai: The challenges Opec will confront trying to limit output were evident just minutes after the group agreed on the new plan. In an angry and sometimes incoherent briefing, Iraq’s oil minister railed against the journalists and analysts who estimate the amount of crude each member produces.
Why? Those estimates will be key to setting quotas and evaluating which countries are meeting their commitments to cap production and which aren’t. Iraq’s minister, Jabbar Al Luaibi, complained in Algiers that published estimates of Iraqi output were too low and warned that Iraq will refuse to accept figures that don’t match its own.
While Wednesday’s agreement imposed an overall production cap on the group of 14 oil producers, it didn’t assign individual limits — that was left to a committee that will report back at the Organisation of Petroleum Exporting Countries’ (Opec) next meeting in November. Agreeing and monitoring those targets will be fraught.
"They still need to come up with those individual country quotas,” Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd. in London, said Thursday in a Bloomberg Radio interview. "The devil is in the detail.”
Cheating by member states that exceeded their quotas was a constant challenge for the group until it scrapped individual limits on output in 2008. The group may even have a hard time just agreeing on production baselines, as demonstrated by Al Luaibi’s protest at Wednesday’s news conference in Algiers.
"I don’t think that what we have is a deal,” Jaafar Altaie, managing director at consultants Manaar Energy Group, said by phone from Abu Dhabi. "What we have is rhetoric alluding to a deal that gives breathing room for prices to rise and for Opec to decide on the terms of its agreement and how to put it into place.”
European Brent crude and US futures both jumped more than 5 per cent on Wednesday on speculation that the deal will tighten the supply-demand balance. Brent, the global benchmark, slipped 0.2 per cent to $48.59 a barrel at 3:32pm on Thursday in London.
Iraq’s Al Luaibi told reporters he disagreed with the production level Opec attributed to his country. Iraq told Opec it pumped 4.638 million barrels a day last month, while data that the group compiled from secondary sources — analysts and consultants — put Iraqi output for August at 4.354 million barrels a day. Opec publishes the two sets of production figures each month in a report.
"All these secondary sources which are used by international organisations should be corrected,” Falah Al Amri, Iraq’s governor to Opec, said after the Algiers news briefing. "This is a really very, very upsetting figure. So this is what made our minister upset today in the meeting because you use figures which aren’t acceptable.”
Iraq pumped 4.48 million barrels a day in August, according to data compiled by Bloomberg.
Iraq itself hasn’t had a quota since 1991 as Opec gave the country the chance to recover from the first Gulf War. A proposal circulated at the meeting by the host country Algeria suggested Iraq will get a quota once again.
The are several other complexities.
Since Opec last set quotas for its members, four countries have either joined or re-joined Opec —Angola, Ecuador, Indonesia and Gabon. Moreover, Wednesday’s agreement is expected to exempt Nigeria and Libya, where sabotage and war have curbed output.
Then there are incentives to cheat — especially if prices don’t recover.
The biggest threat to Opec’s agreement might be "what happens if prices don’t rise enough for members to start balancing their budgets.” said Bell of Emirates NBD. "Every country is going to be fighting to get what’s best for them.”