Some 15 years ago, a troika of powerhouse
oil producers forged a secret pact to revive oil prices from a
crisis-inducing low of near $10 a barrel. In a series of private
meetings from Madrid to Cancun, ministers from Saudi Arabia,
Venezuela and Mexico set aside months of acrimony to hammer out
production cuts.
This week, Saudi Oil Minister Ali al-Naimi will make a rare
visit to the two other nations involved in that effort. But
veteran oil analysts see no sign of a new coalition in the
making, despite some parallels to the late 1990s - a structural
downturn in oil markets and talk of a price war among producers.
If anything, Naimi may simply seek to explain Saudi Arabia's
latest stance on the market, a tough message about how all big
producers must be prepared to endure a period of lower prices in
order to slow the march of their newest rival: the United
States.
"I suspect that Naimi will tell the Venezuelans the
unvarnished truth - prices have to go down quite a bit and stay
down," says Philip K. Verleger, president of consultancy
PKVerleger LLC and a one-time adviser to President Jimmy Carter.
Oil prices have tumbled nearly 30 percent since June, with
U.S. crude falling below $80 a barrel on Monday, but the open
hostility and panic big oil producers faced nearly two decades
ago is largely absent. Even if Naimi were rallying support for
action, Latin American producers struggling to maintain output
would likely be his last stop.
"This (trip) is very much a sign of business as usual
without any panic," said Paul Horsnell, global head of
commodities research at Standard Chartered Bank.
The visits may be an early indication that the three
countries - once fierce competitors selling heavy crude into the
premium U.S. market - are finding common cause facing the
fast-emerging threat of North American shale and oil sands.
"There are some interesting changes and opportunities today
given the fact that the United States has become a major light
sweet producer," said Amy Myers Jaffe, executive director of
energy and sustainability at the University of California,
Davis.
CLIMATE AND NATURAL GAS
The stated purpose of Naimi's trips is benign: he will
attend a climate change conference in Venezuela and a natural
gas conference in Mexico. Naimi has long been the kingdom's
envoy to global climate talks, but he has not been to Venezuela
since 2006.
But the visits will also afford a chance for Naimi - who was
involved in the late 1990s talks - to explain the kingdom's
relaxed stance on oil prices to Venezuela, one of the OPEC
members at greatest risk from falling crude revenues. It may be
a precursor to more difficult conversations down the road.
Less than four weeks before the Organization of the
Petroleum Exporting Countries meets in Vienna, there is no
indication that the group's core Gulf members are in any hurry
to tighten the taps. Without a reduction in OPEC output or a
sharp slowdown in U.S. shale production, some analysts expect
prices to keep sliding into next year.
Officials in Venezuela and Mexico declined to say whether
any direct discussions between oil officials were planned.
TOUGH TALK OR FRIENDLY CHAT?
Venezuelan officials have publicly lamented talk of a price
war following Saudi Arabia's move last month to cut export
prices of its crude, seen by some as an indication that the
world's biggest exporter had shifted strategy toward defending
its market share, even at the expense of lower global prices.
But that veiled criticism is a far cry from the open
hostility between the two nations in the late 1990s, when Saudi
Arabia sought to punish Venezuela for revving up output in
excess of its OPEC quota by flooding the market - the last of
several price wars within the cartel. Now Venezuela is fighting
to keep output from falling.
"Right now if you wanted to get production cuts the last
place you would go is Caracas or Mexico City," said Nathaniel
Kern, president of Foreign Reports in Washington.
Mexico, not an OPEC member, was enlisted as an "honest
broker" to get the two countries talking, said Horsnell. Oil
prices had tumbled 40 percent after the Asian financial crisis
of 1997.
In the end, Algeria's oil minister acted as a go-between
during months of cloak-and-dagger petro-diplomacy, involving
unmarked jets, secret trips to Europe and, finally, a March 1998
output deal in a rented room at the Madrid airport.
Naimi's trip shows that talk of a current price war is
overblown, says Horsnell.
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