OPEC and its non-OPEC partners, including Russia, have agreed to increase oil production after meetings on Friday and Saturday. The production increase will start in July by “measurable” supply boosts, but without specific numbers being given.
One of the highlights of the OPEC meeting on Friday was predictable - stark disagreement between OPEC de facto leader Saudi Arabia and regional rival Iran, OPEC’s third largest producer, which likely led to no specific output numbers being agreed upon.
However, OPEC and non-OPEC partners did say in statements that they would raise supply by returning to 100 percent compliance with previously agreed output cuts.
Saudi Energy Minister Khalid al-Falih said this implied an indirect reallocation of extra production from countries unable to produce more oil to those, such as his own and the other Gulf OPEC members, that are able to do so. He added that OPEC and non-OPEC combined would pump roughly an extra 1 million barrels per day (bpd) in coming months, equal to 1 percent of global supply.
Iran’s OPEC governor Hossein Kazempour Ardebili, however, countered and said that no reallocation was agreed at Saturday’s joint OPEC and non-OPEC meeting or the OPEC-only talks a day earlier.
The elephant in the room
While global oil markets wait for more concrete data, perhaps a long wait, coming from the 14-member oil producing cartel and its non-OPEC members, the obvious elephant in the room over a more cohesive OPEC deal is Iranian angst over Riyadh’s support, even backroom diplomatic push, for President Donald Trump’s decision to re-impose sanctions against Iran over its nuclear development. Related: This Is Aramco’s Spare Production Capacity
Iran has also ratcheted up its disapproval of the Trump Administration in recent weeks as the Islamic Republic tries in vain for global support to offset coming economic sanctions that are already impacting the country’s ability to cut international business deals, including French oil major Total’s impending exit from Iran due to its heavy reliance on U.S. markets for debt financing. Most other international companies, when faced with alienating the U.S. or choosing sides with Iran, have little choice but to follow Total’s example.
Other international firms preparing to exit Iran or least putting their plans on hold due to renewed sanctions include Russian oil giant Lukoil. Reliance Industries, the Indian company that owns the world's largest oil refining complex, will also stop buying oil from Iran.
Meanwhile, just after OPEC wrapped up its meeting on Friday in Vienna, Iran pressed its media attack on Washington.
"Trump makes two mistakes,” Iranian Oil Minister Bijan Namdar Zanganeh told reporters.
“The first one is that he thinks that he will witness regime change in Iran very soon which is a big mistake; and his second mistake is that he thinks there is a capacity in the world for a major excess production (of oil). This is also a mistake,” he said.
Iran has said previously it will remain committed to the 2015 nuclear deal reached with western powers for the time being, pending negotiations with other signatories of the agreement to see if Iran’s interests would still be protected under an accord without the U.S.
However, given that Iran has already tried to press EU members for more action both collectively and individually with minimal success, as well as appealing to OPEC for help, there is a real chance that Iran will break its terms of the 2015 deal, raising the geopolitical stakes with the U.S. as well as furthering tensions with Riyadh both within OPEC and while jockeying for regional hegemony in the region. Related: A Storm Is Brewing In The Southern Gas Corridor
The obvious about-face by Saudi Arabia amid recent pressure from Trump to increase oil production and reign in oil prices also causes considerable anger with Iranian leaders, as does what can be called a re-renewed U.S.-Saudi partnership.
Iranian Supreme Leader Ayatollah Ali Khamenei pointed this out recently when he accused the U.S. of working to “provoke” Saudi Arabia against Iran.
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“Americans are trying to provoke Saudi Arabia against Tehran ... Their aim is to create more regional crisis ... to push Muslims to fight against Muslims,” Khamenei said, according to a report by Reuters.
“If these governments gain more wisdom, they will not confront Iran. If they confront Iran, they will be defeated.”
However, given the growing divergence between Tehran and Riyadh and an emboldened Saudi Arabia amid Trump’s hawkish middle east policies and renewed sanctions decision, the recent OPEC agreement to increase production and any real numbers and compliance to those numbers could take considerably more work.
By Tim Daiss for Oilprice.com
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Trump's 2nd demand from OPEC about "high prices" (his most recent one), was a farce.
You see, the moment Trump exited the Iran nuclear deal, Saudi Arabia stepped in, suddenly willing to increase production to "avoid any supply disruptions". Yeah right.
We all know the rift the Saudis have had with Iran, and now is the Saudis' opportunity to steal their market share. I have no doubt that Trump told his allies in Russia and Saudi Arabia ahead of the OPEC meeting for them--and it ended up being specifically only those two countries--to ramp up production.
Now, there is a call to stop buying Iranian oil. Wow. Russia & Saudi Arabia take their market share and as of this moment, about $5 to $6 higher per barrel than WTI was at this time last week. Real slick, Mr. Drumpf...it's only a matter of time before Iran is no longer a member of OPEC and Russia steps right in--you'll see.
Thus, there is no supply disruption necessary for prices to surge so quickly. Perhaps from Venezuela but slowly and we already knew that, so it is being priced in the market. Libya and Nigeria? Okay, but not Iran. Folks, even I can see this "from a mile away".