Oil Minister Bijan Namdar-Zanganeh Tuesday asked OPEC to shave its output by “at least 5 percent” in order to make way for Iran’s return to the market.
Iran’s exports are now a little over 1.0 million barrels a day versus 2.5 million before sanctions put a huge crimp in sales. Zanganeh’s call for a 5 percent cut would amount to 1.5 million barrels day or just what Iran would like to add to its exports.
OPEC ministers will next meet June 5, where the topic of the cartel’s production quota will likely be discussed. OPEC has had a self-imposed overall quota of 30 million barrels a day for last few years.
When the bottom dropped out of the oil price in the last half of 2014, eight of OPEC’s members supported a 5 percent cut. But Saudi Arabia, Kuwait, Qatar and the UAE all stood firm in opposition to any cut. Since OPEC’s rules require unanimous agreement, there was no change.
Zanganeh said Tuesday, “Even the most conservative OPEC member states do not believe OPEC production should exceed 30 million barrels a day and we believe that this amount should be cut by 5 percent.”
His public statement suggested he was prepared to start a row over the quota at the June meeting, rather than just sit silently by as he did at the meeting last November.
Zanganeh said, “OPEC is mature enough to regulate itself so that the market would not be harmed after Iran returns to its previous quota.”
There are two problems with that statement. First, Iran has no quota. Nor do any other OPEC members. The cartel abolished state-by-state quotas years ago and now has only its overall quota of 30 million. Thus, there is really no way to police output.
Second, the June meeting will be held four weeks before the nuclear talks are targeted to wrap up. Thus, no one at the June meeting will have any idea when the sanctions on Iran’s oil sales will be lifted or even if there will be an agreement at all. So, the chances of the Persian Gulf Arab states wanting to cut the quota appear slim.
Last week, Saudi Oil Minister Ali An-Naimi said publicly that Saudi Arabia plans to keep its oil production at around 10 million barrels.
For the Saudis, the primary goal is to keep their market share. They see any reduction in output in order to shore up the price as a long-term loss for them. They argue it is better just to hold the line on production, preserve market share and wait for the price to recover.
What’s more, they are anticipating that a lower price will mainly punish high-cost American shale producers. The lower the price today, the faster they will be driven from the market, in Saudi eyes.
Furthermore, low prices are a pain for Iran. So, in that sense, lower prices are delightful, in Saudi eyes.
US oil output is still rising. However, the US Energy Department said last week that it expects crude production to start declining as of June because of the low prices. Whether that is accurate, however, will not be known when OPEC meets June 5.
