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Iran Urges OPEC To Cut Production Levels by 1.3 Million Barrels Per Day

Iran’s oil minister says he won’t seek OPEC’s permission to begin producing large amounts of oil next year, but he did send a letter to the group’s leader saying it should reduce overall production.

On Nov. 17, Bijan Namdar Zanganeh told a Tehran news conference that an increase in the global oil supply doesn’t worry Iran. “The drop in prices won’t be a concern for us,” he said. “It should be a concern for those who have replaced Iran” as a source of oil during the period when international sanctions kept its energy exports to a bare minimum.

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In fact, Zanganeh said, his country expects it will have no trouble selling its oil because “the market has taken into account our return,” he said.

Still, it’s clear Iran would profit more if oil were not so plentiful, and Zanganeh has sent a letter to OPEC’s secretary general, Abdalla Salem el-Badri, urging the group to direct its 11 other members to reduce their output collectively by 1.3 million barrels per day, Iran’s Ministry of Petroleum Secretary for OPEC Affairs Mahdi Asali said Tuesday.

On Friday the cartel will hold its ministerial meeting at its headquarters in Vienna, where it will consider oil output levels and pricing. At its meeting in November 2014, OPEC decided to maintain production levels at 30 million barrels per day, despite a market glut caused in large part by increased oil output in the United States. The group refused to abandon this policy at its meeting last June.

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What Zanganeh is seeking isn’t a cut in OPEC’s production ceiling, but, as a first step, a commitment by its members to adhere to the ceiling already established. “[C]urrently, while the production was supposed to be 30 million barrels daily, it has reached 31.3 million barrels per day,” the letter read, according to Asali.

“It is clear which countries have produced more than their quota,” Zanganeh wrote.

The letter made the following proposal: “[T]he first step would be a return to the ceiling of 30 million barrels, while as part of the second stage Iran will return to previous production and exports levels once international sanctions against the country are lifted.”

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Asked how el-Badri might react to Iran’s request, Asali said, “We were not looking for a reaction, rather it was a request for adherence to commitments as well as announcing Iran’s intention to return to previous quotas.”

Under the sanctions imposed on Iran's energy and financial sectors, the country has struggled to sell its oil, and therefore has produced far less than it is capable of. In October, for example, the country produced only about 2.6 million barrels a day. Before the sanctions it was producing more than 4 million barrels per day.

By not cutting production despite a market glut, OPEC’s strategy was to wrest back market share from low-efficiency oil producers and to drive them out of business, according to its architect, Saudi Oil Minister Ali al-Naimi. Such producers include companies in the United States that rely on costly hydraulic fracturing, which ceases to be profitable unless the price of oil is at least $60 per barrel.

In an interview with the Middle East Economic Survey a month after OPEC’s November 2014 meeting, al-Naimi said he was confident that high-efficiency could withstand a low price for oil long enough to achieve his goal. “Whether it goes down to $20, $40, $50, $60 – it is irrelevant,” he told the magazine.

By Andy Tully Of Oilprice.com

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