Saudi Arabia, Iran must bridge gap to make crucial OPEC deal possible
Saudi Arabia and Iran have just two months to resolve a 600,000-barrel-a-day difference over production limits if they want to secure an agreement that could prevent another year of oversupply on the oil market.
The gap, more than the daily production of fellow OPEC member Ecuador, shows how much work remains before the group can replace the pump-at-will policy adopted in 2014 that upended the oil market, shaking investors, corporations and entire economies. The stakes remain high as the International Energy Agency predicts a worsening oil market if OPEC doesn’t act.
“It’s not our agenda to reach agreement in these two days,” Iran Oil Minister Bijan Namdar Zanganeh said on Tuesday, adding that he was in Algiers “to have a consultative informal meeting with OPEC to exchange views, not more.”
He said later that he hadn’t discussed any deal with Saudi Arabia on Tuesday. Still, the mere fact there are numbers on the table before OPEC’s formal meeting in Vienna in November shows that Saudi Arabia and Iran are closer to a deal than any time in the last two years.
While Tehran wants to set its production target at about 4.2 million barrels per day, Riyadh is asking its regional rival to freeze its output at 3.6 million barrels per day in return for a production cut.
At stake isn’t just current oil output levels, but a mix of Middle East politics and domestic pride that have over decades made the allocation of individual ceilings for each member of the Organization of Petroleum Exporting Countries the most difficult issue the group has to deal with.
OPEC has in the past needed many months of behind-the-scenes diplomatic talks to resolve previous battles .“There definitely seems to be a bigger push toward achieving some co-ordination amongst members this time around, so even if there is no concrete deal in Algeria, this isn’t over yet,” said Amrita Sen at consultant Energy Aspects Ltd. in London. “The door remains open for further negotiations and a possible deal at the Nov. 30 OPEC meeting in Vienna.”
Whether Saudi Arabia and Iran can narrow the gap will determine the fate of the oil market and industry in 2017. The head of the International Energy Agency said on Tuesday that oil supply will exceed demand until late next year.
“We don’t see the oil market rebalancing until late 2017” unless there’s a “major intervention,” IEA executive director Fatih Birol said.
Goldman Sachs, the biggest Wall Street bank in commodities, added to the pessimism, saying in a report to clients on Tuesday that the nearterm oil “supply-demand balance is weaker than previously expected.”
As OPEC ministers gathered in Algiers, they only agreed that oil prices weren’t high enough.
“Today we find ourselves below $50 and uncertain about future demand or prices,” said Saudi oil minister Khalid Al-Falih.