Oman wants to slash oil production in order to staunch the price slide and ease the supply glut—but it won’t move before OPEC does.
It’s a story we’ve heard before. None of the 12 OPEC countries are willing to take a hit on production unless the others take a hit first, but non-OPEC Oman is reeling from the financial consequences.
Oman has had to borrow $1 billion to make up for low oil prices. And there is a lot to make up for considering that four-fifths of the government’s revenue comes from oil and gas exports—and its 2015 budget was calculated against $85 oil.
On Monday, Oman said it would cut production by 5 percent to 10 percent in order to stabilize the market, but the ball is still in OPEC’s court.
Venezuela—which is losing billions—has long criticized the OPEC policy of not budging on the production cap. Iran, which has been languishing under sanctions, had nothing to lose by calling for a reduction in production. Saudi Arabia—the very tenuous king of OPEC—has stayed the course.
Last year, the kingdom’s most famous tag line was one suggesting that Allah sets oil prices.
Pretty much everyone has been saying the same thing for some time, so Oman’s new statement doesn’t carry much weight.
At its November meeting, OPEC voted to maintain its production target.
One thing has changed since then: Sanctions against Iran were lifted over the weekend, and the Saudis and their followers were in part hoping that their staunch position on crude production would help sway the sanctions decision. It didn’t, and now the Saudis have less to bargain with.
Iranian oil will flood the market. On Monday, to no one’s surprise, Iran ordered an increase in production by 500,000 barrels, and the market responded with oil slumping below $28. The Saudi-aligned OPEC members had hoped that Iran’s planned increase in production would help deter the lifting of sanctions.
How the Saudis handled the anticipated market free-fall when sanctions were lifted added another twist. In the face of additional Iranian production, OPEC predicted that the U.S.—and other non-OPEC producers—would scale back production to boost prices, taking a bit of the heat off the slide.
The Iran sanctions part of this game is over, but the rest is nowhere near being resolved. OPEC has spoken. It’s about who will blink first.
By Julianne Geiger for Oilprice.com
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