OPEC Seeks Last Minute Compromise, Iran Refuses to Increase Supply
The OPEC meeting in Vienna on Friday was the latest attempt to overcome the Iranian opposition to follow the initial agreement to increase production of 1 million barrels per day. Although the actual increase will be smaller because some countries cannot increase production.
After the evening of the drama in Vienna on Thursday, the Joint Monitoring Committee, which includes Russia and Saudi Arabia, recommended an increase in supplies even though Bijan Namdar Zanganeh, Iran’s oil minister, quit the meeting and predicted OPEC would not convince him to support increased supplies. He met with Saudi partners for private talks on Friday morning before the full OPEC meeting, said a delegate.
Iran can use veto power over official agreements, but such a move will not always prevent additional supplies of oil entering the market. Riyadh can build coalitions of countries that are ready to support their existing agreements, act unilaterally to increase output or ignore the 2016 cutting supply agreement completely.
Zanganeh’s disagreement reflects the fact that the petroleum industry is under new US sanctions. The ban imposed after President Donald Trump unilaterally withdrew from an international agreement on Iran’s nuclear program, could significantly limit the country’s oil exports. Saudi Arabia has sufficient reserve capacity to offset the losses and keep prices fixed, but Energy Minister Khalid Al-Falih acknowledged on Thursday that such actions were not politically suitable for fellow OPEC members.“From Iran’s point of view, OPEC’s decision to increase production facilitates aggressive US policy towards Tehran,” said Jason Bordoff, director of the Center for Global Energy Policy at Columbia University in New York and former oil government official Obama.
Consumers clearly demand more supplies for the second half of the year and the Organization of Petroleum Exporting Countries and its allies must heed their calls, Al-Falih said. However, the royal desire to maintain the unity achieved by a group of 24 oil producers has produced a convoluted mechanism to satisfy those needs.“One million barrels per day is nominal,” Al-Falih told reporters as he explained the increase recommended by the committee meeting on Thursday. “What is actually sent to the market will be a smaller number.”
The actual production increase will be around 600,000 barrels per day, a delegate familiar with OPEC’s internal calculations said. Among group members, Venezuela certainly cannot increase production because its oil industry collapsed. Outside OPEC, Mexico is unlikely to produce more.
OPEC needs to ratify recommendations on Friday at its official meeting. Not infrequently the cartel deviates from the initial agreement. Maybe they could find a last-minute compromise that would resolve the Iranian opposition. The cartel will meet again on Saturday with non-member countries, including Russia, which is part of an initial agreement to limit supply.