Something unprecedented happened last November when OPEC sat down in Vienna to hammer out the final terms of its oil production cut deal (which, incidentally, has yet to translate into a drop of all time high inventories): one day before the summit, the oil producing cartel – or rather Saudi Arabia – secretly invited hedge funds to sit in on the negotiations and provide OPEC, with input on what to do. However, news of the meeting leaked shortly thereafter, and was reported by the FT: “Saudi Arabia convened private talks with the world’s largest oil traders in Vienna before OPEC’s crunch meeting on whether to cut oil output, seeking views about the likely market reaction should they fail to clinch a deal, it has emerged.
Mark Couling, head of crude oil at Vitol, the world’s biggest independent oil trading company, was invited to Vienna by the Saudi delegation, according to people with knowledge of the talks. Pierre Andurand, who runs the $1.5bn Andurand Capital fund, one of the world’s biggest oil hedge funds, was also invited, alongside at least one trader from Russian independent oil company, Lukoil.
Mr Couling and Mr Andurand attended a meeting with the Saudi delegation on Tuesday morning, before the kingdom’s oil minister Khalid al Falih arrived in Vienna, people familiar with the meeting said. A trader from Litasco, Lukoil’s trading arm, also attended, they said.
Why this overture by the Saudis to invite and give traders responsible for shipping millions of barrels of oil and trading billions in crude derivative a potential first look? As the FT explained at the time, “Saudi delegates have previously done so on occasion when they were looking to get a better feel for the market.”
It is now four months later, oil is modestly higher, but not too high, and conversation has recently shifted away from OPEC’s favorite topic: production cuts, to something far less enjoyable: surging shale production which threatens to take away market share from the Saudis and OPEC, and whether or not OPEC will extend the production cut deal beyond the first half of the year.It also appears that the OPEC is once again nervous, because as the WSJ reports, the “Organization of the Petroleum Exporting Countries is on an unusual listening tour, in which it exchanges views with hedge funds, investment banks and other big financial players while trying to figure out how the market reacts to its moves.”
