By Benoit Faucon, Christopher Alessi and Summer Said
ALGIERS, Algeria -- OPEC producers largely agree that oil prices
above $80 a barrel would be too high. But there is widespread
disagreement on how the cartel and its allies should contain crude
prices once U.S. sanctions banning Iranian oil sales take effect in
November.
The lack of a consensus highlights inequities between
oil-producing countries that can boost output beyond current levels
and those that can't. The former group would like to see a rise in
demand. The latter prefer higher oil prices.
At a gathering of the cartel and nonmember producing nations
here on Sunday, Saudi Arabia, the de facto leader of the 14-member
Organization of the Petroleum Exporting Countries, and Russia,
which leads 11 other allied producers, reiterated that they want to
adhere to production quotas to which they agreed in late 2016.
But sticking to those limits would mean an extra 500,000 barrels
a day would flow into global markets to compensate for expected
declines once the Iran sanctions take effect and as Venezuela's
economic crisis continues.
"Every extra dollar on the oil price eases their pain," said
Richard Mallinson, geopolitical analyst at consultancy Energy
Aspects, of struggling OPEC producers including Libya, Angola,
Algeria, Nigeria and Venezuela. "The only way those countries can
ease their economic pressure "is by hoping for, pushing for a
higher price," he said.
Any extra supply would need to come from Saudi Arabia and other
Persian Gulf countries, along with Russia. Thanks to years of
investment and relative stability, those countries can generate the
revenue they desire by offsetting lower prices with increased
production.
By maintaining official limitations, the alliance will keep a
floor for oil prices, which have recently hovered between $70 and
$80 a barrel. That will benefit African countries such as Angola
and Nigeria, as well as others including Iran and Venezuela, which
benefit from higher prices because of an inability to increase
output after years of bureaucratic and political challenges.
These differences are expected to complicate talks between OPEC
members and nonmembers. Meanwhile, President Trump last week urged
the group to churn out more oil to keep prices lower, tweeting "The
OPEC monopoly must get prices down!" on Thursday.
The group must decide whether to keep the current system of
allocating individual production limits into next year or allow
countries to bring as much oil as they want to market. Countries
that can pump more like Saudi Arabia are considering giving more
leeway on such restrictions. Others with restrained capacity
disagree.
One of the nations opposed to a production free-for-all is
Algeria. Few OPEC members exemplify the divide better than the host
nation of this weekend's summit. A lack of quotas means "some
producers can increase as they want while others can't,"
Abdelmoumen Ould Kaddour, chief executive of state oil company
Sonatrach, told the Wall Street Journal.
Algeria is struggling to capture the benefits of oil prices
currently near $80 per barrel. It depended on hydrocarbons for
96.1% of its export revenue last year, according to an
International Monetary Fund report released in June. Despite rising
prices, unemployment rose to 11.7%, inflation remained at 5.6%, the
IMF said. Meanwhile, the country's international foreign reserves
have halved since 2013, falling to $96 billion at the end of
2017.
In September 2016, the country spearheaded talks within OPEC to
cut output as prices crashed under the weight of mounting U.S.
supply. Algeria's need to maximize revenue on each of the million
barrels a day it pumps explains its active support for the effort,
said Richard Mallinson, geopolitical analyst at consultancy Energy
Aspects. It and the rest of the cartel later brought Russia and
others into the deal, engineering a quick recovery in oil
prices.
This weekend's meeting was a major event for Algeria. Soldiers
in immaculate white uniforms played the national anthem as
delegates attended a ceremony honoring 81-year-old President
Abdelaziz Bouteflika.
The IMF reported that Algeria's deficit is widening as the
government raised spending on housing, roads and other
infrastructure. Critics say the extra revenue earned from
production curbs is merely assuaging tensions over Mr. Bouteflika's
19-year rule.
Outside the conference facilities, state-employed electrician
Mohamed, 47, said he has to moonlight as a taxi driver to help make
ends meet. His job pays the equivalent of $213 a month.
The extra earnings from $70-plus per barrel oil have gone toward
nonproductive spending more than diversifying beyond oil, said
Soufiane Djilali, president of opposition party Jil Jadid, Arabic
for New Generation. "It's just giving a breath of fresh air to the
regime."
Neil Atkinson, head of the International Energy Agency's oil
industry and markets division, said similar pressure to keep prices
high were being shared by other OPEC countries that are lower
producers and high spenders.
Venezuela is perhaps the worst example with years of
mismanagement leading to scarcity of goods, skyrocketing inflation
and power cuts that hurt its oil production.
"We fear Venezuela is our destination" once cash reserves have
run out, said Mr. Djilal, the Algerian opposition politician.
Sonatrach's Mr. Ould Kaddour, whose company is the biggest in
Africa by revenue, said he has initiated deep cost-cutting as part
of a plan to boost income by $68 billion by 2030. Some of that cash
will come from ending costly oil-product imports following the
purchase of an Italian refinery and investments in plants at home,
he said.
Sonatrach's home country hasn't shown similar discipline. In
addition to overspending, Algeria has often suffered from a
business environment too difficult to attract significant
investment in oil and gas fields and other sectors. Production in
Angola, for instance, has stagnated because oil majors have stopped
investing in its costly, highly bureaucratic environment.
Delegates from countries like Algeria will likely have these
issues in mind as they try to reach consensus with OPEC and other
oil-producing allies on quotas.
Write to Benoit Faucon at benoit.faucon@wsj.com, Christopher
Alessi at christopher.alessi@wsj.com and Summer Said at
summer.said@wsj.com
(END) Dow Jones Newswires
September 23, 2018 18:20 ET (22:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.