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Where Will Oil Prices Go After Algiers?

Following the media spectacle that…

Iran Says Oil’s Price Drop No Threat, Won’t Demand Production Cut

Iran Says Oil’s Price Drop No Threat, Won’t Demand Production Cut

Iranian officials are taking the current drop in oil prices in stride and don’t plan to demand a cut in production by OPEC.

During previous price declines, Tehran has called for deep reductions in output, but on Oct. 14, Shana, the news agency of the Iranian Oil Ministry, quoted Deputy Oil Minister Rokneddin Javadi, as saying, “The drop in oil price is short-lived.”

The article said when asked if the global drop in prices would hurt Iran’s budget, Javadi replied, “I don’t think so.”

On Oct. 14, the current price of crude was below $90 a barrel – the lowest since 2010. Oil industry and political observers say Iran needs the price to be as much as $140 a barrel to sustain spending by Tehran.

Related: 5 Reasons Oil Prices Are Dropping

Javadi’s comments are curious not only because they reflect a shift in Iran’s view of oil prices-it is true that demand for oil, and its price, tend to decline in the autumn once the summer travel season ends in the West- but also because the current slump has been caused by the oil boom in the United States due to new crude extraction techniques such as horizontal drilling and hydraulic fracturing, or fracking.

Ordinarily, Iran has been alone among Middle Eastern countries in demanding production cuts as a way to prop up the price of oil -- its Arab neighbors have taken previous slumps in stride. Most recently, for example, Saudi Arabian oil officials have been discreetly signaling that it is comfortable with oil prices, and its neighbor, Kuwait, said on Oct. 12 that OPEC probably won’t cut production.

Now it appears that Iran is taking the same view. “At this time of year, it is normal to have some price weakness,” one person knowledgeable of Iran’s oil policy told Reuters. “And oil price weakness has been compensated for by the appreciation of the dollar.”

Related: How Long Can U.S. Production Survive Low Oil Prices?

Previously, OPEC members have used weaknesses in U.S. dollar to validate their calls for higher oil prices, further sap the dollar’s strength, and limit the value of oil revenues based on the U.S. currency. Now, though, the dollar is at a four-year high compared with other currencies, helping to strengthen the value of such income.

On Nov. 27, OPEC members will meet in Vienna to review their production policy. With Iran’s new attitude, the only member of the cartel calling for an emergency meeting before then is Venezuela, even as fellow members Kuwait and Algeria are saying publicly there will be no production cuts.

And even if OPEC decides to cut output to help boost prices, it would be the first such decision since the global financial crisis in 2008.

By Andy Tully of Oilprice.com

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  • John on October 16 2014 said:
    This is completely false!
    Iran's governmental budget for this year has assumed an oil price of $70 per barrel! (officially published already)
    This means as long as the price is above $70 Iran is actually overachieving their planned governmental income!
    In the meantime, many US, Canadian and European companies will go bankrupt because "Shale" and other types of oil alternative will no longer be economically viable!

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