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The leaders of Iran and Venezuela, two OPEC members badly hurt by the plunge in oil prices, say they will work together to raise the price to a level that they consider more realistic.
Venezuelan President Nicolas Maduro, visiting with Iranian President Hassan Rouhani in Tehran on Jan. 10, said OPEC as a whole needed to cooperate with their effort. Rouhani said, “Undoubtedly, cooperation among aligned countries in the OPEC, while neutralizing plans by certain powers against OPEC, can help stabilize an acceptable oil price in 2015.”
Iran is just one stop on a campaign by Maduro to visit several of OPEC’s 12 member nations in search of support for a production cut to lower supply and thus raise the price of oil, which has plunged more than 55 percent since June. His next stop was in Riyadh on Jan. 11 to speak with Saudi leaders about the problem.
Related: OPEC Calls For Widespread Production Cuts
OPEC had the opportunity to cut prices during the meeting at its Vienna headquarters on Nov. 27. But at the insistence of Saudi Arabia, its largest and most influential producer, it chose to keep a nearly 3-year-old production cap of 30 million barrels per day.
Saudi Oil Minister Ali al-Naimi has since said the reason was to recoup market share lost in large part to the United States, which has been enjoying a boom in production of shale oil and has gone from being OPEC’s largest customer to oil self-sufficiency, or close to it.
Extracting shale oil requires hydraulic fracturing, or fracking, which is more expensive than conventional methods and ceases being profitable if its price is too low. Some say that threshold is $60 per barrel, and the price of oil is now about $10 below that level.
In Tehran, Maduro, quoted by Iranian state television, said, “We are making efforts to create a consensus among OPEC members and other oil-producing states, including Russia, to cooperate and use novel mechanisms to reverse the oil price to an acceptable level.” He didn’t specify these mechanisms.
The Venezuelan leader also met with Iran’s supreme leader, Ayatollah Ali Khamenei, who said, “The strange drop in oil prices in such a short time is a political ploy and unrelated to the market. Our common enemies are using oil as a political ploy and they definitely have a role in this severe fall in prices.”
Venezuela has been suffering a recession in 2014, with economic contraction during the first three quarters, largely due to the price of oil, its most valuable commodity. As a result, Caracas may default on its foreign bonds, although Maduro has denied that will happen. Maduro’s government was outspoken before the Nov. 27 OPEC meeting that the cartel should cut production to shore up prices.
As for Iran, its economy already has been constrained by Western sanctions over its nuclear program, which Tehran says is peaceful but many suspect is aimed at developing weapons. As a result, it too has been vocal about its desire to see a cut in oil production to bolster prices, and blames Saudi Arabia in particular for this failure to act.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com