Alexander Novak and Khalid Al-Falih (Image Credit: Simon Dawson/Bloomberg)

OPEC Deal Hinged on 2 a.m. Phone Call and It Nearly Failed

  • Saudi call with Russia led to first supply cut since 2008
  • Deal finally gets struck after Indonesia is sidelined

After months of meetings from Doha to Moscow, it was a 2 a.m. phone call between two of the most powerful men in the global oil industry that finally broke the impasse.

On the eve of the Nov. 30 meeting of the Organization of Petroleum Exporting Countries, the odds of finishing a deal to reduce supply and ease a global oil glut didn’t look good. Members remained deadlocked over how much each should reduce. They had been forced to cancel talks aimed at getting other suppliers like Russia and Brazil to play a part.

But in the small hours of the morning of Nov. 29 Riyadh and Moscow time, Saudi Arabian Energy Minister Khalid Al-Falih and Russian counterpart Alexander Novak had talked.

Novak promised that Russia was willing not simply to freeze its output, as it had long insisted, but to cut, contributing half of the total supply reduction OPEC was seeking from competitors around the world, according to officials and ministers directly involved in the talks. In return, Al-Falih had to press the organization the next day to submit hard numbers for their own production curbs.

Al-Falih would make good on his word. At about 5 p.m. local time on Nov. 30, OPEC announced from its Vienna headquarters that it would decrease output for the first time since 2008, by 1.2 million barrels a day. In addition, officials proudly declared that Russia and other oil producers outside the group would cut 600,000 barrels of their own. Oil prices then surged more than 15 percent to above $50 a barrel, with Brent reaching its highest level in more than a year.

“After a couple of failed attempts, OPEC finally managed to deliver,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland.

Long Road

The journey to that crucial conversation had been long and hard, according to the officials. They asked not to be identified by name to describe the confidential and intimate details of how the oil-producers club...Read more...

Source: bloomberg.com