The Algeria OPEC meeting concluded with an agreement to limit production in November, during the organization’s formal meeting on the 30th. The news was well received by the markets, but until that day, the market has a long way ahead of it.
In fact, shortly after the meeting ended it was already obvious that the organization’s challenges will be more than a few. Iraq’s oil minister Jabbar al-Luaibi, lambasted journalists and analysts over their estimates on each OPEC member’s production.
Those estimates will be key to setting quotas and evaluating which countries are meeting their commitments to cap production and which aren’t. Al-Luaibi, complained Wednesday 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 yesterday’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 organization’s next meeting in November.
“They still need to come up with those individual country quotas,” Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd. “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.
“I don’t think that what we have is a deal,” Jaafar Altaie, said managing director at consultants Manaar Energy Group. “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.”
Both Brent crude and WTI futures jumped more than 5 percent Wednesday. On Thursday, Brent was nearing $50 per barrel ($49.95), after rising by 1.44 percent at 17:55 (GTM+2).
Iraq’s al-Luaibi told reporters he was “very upset” with the production level OPEC attributed to his country. Iraq told OPEC it pumped 4.638 million barrels a day last month, while according to data from secondary sources — analysts and consultants —Iraqi output for August was 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 organizations should be corrected,” said Falah Al-Amri, Iraq’s governor to OPEC. “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 is pumping 4.48 million barrels a day, 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.
Four countries have joined the group since the last time OPEC established quotas (Angola, Ecuador, Indonesia, and Gabon). It is expected Nigeria and Libya are exempted from this commitment, as sabotage and war have curbed their production.
Also, among the difficulties the group will have to face are the incentives countries will have to cheat on their compliance, especially if prices don’t pick up.
The largest threat for the agreement could be that prices don’t recover enough to allow countries to rebalance their budgets .