Iran, Iraq resistance chokes Opec’s move to limit output
Markets to rebalance without pact
IRAN and Iraq are resisting pressure from Saudi Arabia to curtail oil production, making it hard for Opec to reach a global output-limiting deal when it meets today.
Opec sources told Reuters that a meeting of experts in Vienna this week failed to bridge differences between the oil producers’ cartel’s actual leader, Saudi Arabia, and the group’s second- and third-largest producers over the mechanics of output cuts.
“The revival of Iran’s lost share in the oil market is the national will and demand of Iranian people,” Iranian news agency Shana quoted the country’s oil minister Bijan Zanganeh, who was due to arrive in Vienna yesterday, as saying.
Opec, which accounts for a third of global oil production, agreed in September to cap output at between 32.5 million and 33 million barrels per day (bpd) versus the current 33.64 million bpd to prop up oil prices, which have halved since mid-2014.
Iran has argued that it wanted to raise production to regain market share lost under Western sanctions, when its political arch-rival Saudi Arabia increased output.
Recently, Riyadh offered to cut its own output by 0.5 million bpd, according to Opec sources, and suggested Iran limit production at below 4million bpd. Tehran sent mixed signals including that it wanted to produce 4.2million bpd.
Iraq has also been pressing for higher output limits, saying it needed more money to fight the militant group Islamic State.
Rebalance The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from Opec’s experts.
As tensions within Opec mounted, Saudi Energy Minister Khalid al-Falih said during the weekend that oil markets would rebalance even without an output-limiting pact. He had previously said Riyadh was keen for a deal.
Falih was not expected to land in Vienna before yesterday evening, leaving little time for traditional pre-meeting discussions with other ministers.
“The feeling today is mixed,” Indonesian Energy Minister Ignasius Jonan told reporters yesterday when asked about the prospects of a deal. “I don’t know. Let’s see.”
Brent crude was down more than 2percent, near $47 (R659) a barrel, after the Indonesian comments.
Some analysts including Morgan Stanley and Macquarie said oil prices would correct sharply if Opec failed to reach a deal, potentially going as low as $35 per barrel.
Goldman Sachs, one of the most active banks in oil trading, said yesterday that it saw prices averaging $45 a barrel until mid-next year even without any Opec deal and added that the market was likely to move into a deficit in the second half of next year.
A year ago, Goldman was saying a global glut would push oil prices to about $20. Prices fell to multiyear lows of $27 per barrel in January.
Besides disagreements with Iran and Iraq, Saudi Arabia has also signalled it was unhappy with Russia’s position.
Oil ministers from Opec members Algeria and Venezuela travelled to Moscow yesterday to try to persuade non-Opec Russia to take part in cuts instead of merely freezing output, which has reached new highs in the past year.
They made no comment as they emerged from their meeting. Russian Energy Minister Alexander Novak said he had no plan to travel to Vienna but could meet Opec once it reached a deal. – Reuters
$35 Oil prices will go this low if Opec fails to reach a deal.