I’ve read several reports on the outcome of the Jeddah oil ‘summit’, and still feel no wiser than last week:
• The New York Times says it ‘ended largely in disagreement’, with a ‘modest pledge’ of increased Saudi production and ‘no resolution’ on any other practical steps.
• The Wall Street Journal adds that the Kingdom offered ‘a little more oil now and potentially a lot more later’.
• Whilst the Financial Times says that the Kingdom’s offer to pump at its highest rate for ‘nearly 30 years, risks being completely negated by the sharp drop in output caused by attacks on production facilities in Nigeria’.
It rather reminds me of the ‘North-South Dialogue’ that developed during the 1970′s oil crises. Then, OPEC had felt that oil had become too cheap, and its members disagreed politically with the West over Middle East policies. In response, OPEC had introduced a quota system, which artificially reduced its production. And every few months, oil consuming and exporting nations would meet and ‘agree to disagree’ about what might be done to resolve Arab concerns.
These days, as shown in the chart above, OPEC has no need to restrict production. Oil consuming nations have allowed demand growth (the red line), to run at 1.8% pa since 2003 on IEA estimates, with the result that new demand is now well ahead of new supply. Meanwhile, many of the same issues that upset OPEC members then, are still upsetting them today. The fact that a follow-up conference to Jeddah is planned for the end of the year adds to my sense of déjà vu.