Thursday, 20 September, 2018

Iran, Saudi oil ministers meet to avert showdown

Kenneth Drake | 22 June, 2018, 18:50

The Iran walk-out shows the tension within OPEC after the US, China and India put pressure on the cartel to boost production to ease the pain of high oil prices.

Crude oil prices are trading lower early Thursday, but inside yesterday's range.

OPEC sources said Zanganeh also demanded at the meeting that USA sanctions be mentioned in the group's postmeeting communique, as Tehran has blamed the us measures for causing the recent sharp rise in oil prices.

A production increase on Friday would undo a cut agreed on in late 2016 that has since then helped push up the price of oil by nearly 50 percent.

Russian Federation and Saudi Arabia agreed to increase outflow by around 1.5 million barrels a day to steady the market as U.S. sanctions on Iran and political instability in Venezuela are expected to affect global production.

The policy that has propelled the Nigerian economy upward since January 2017 might be maintained, as Saudi Arabia is considering a compromise to keep OPEC production. They have since substantially overshot that target, with the reduction estimated at 2.8 million bpd.

If all Opec members produced as much as they were allowed under the deal, Opec output would in theory rise by about 740,000 barrels per day, based on Reuters estimates of the group's production in May.


Adding an extra one million barrels per day to the market "sounds like a good target to work with", Saudi Energy Minister Khalid al-Falih said at a seminar organised by the Organization of Petroleum Exporting Countries (OPEC). Their proposal would share out a quota increase of 1 million barrels a day between all members of the group.

Iraqi Oil Minister Jabar al-Luaibi said on Wednesday he hoped there would be agreement when OPEC meets but added: "The oil market has not reached the level of stabilization". The proposal has yet to win the backing of all OPEC members, and may also meet resistance from Venezuela, Algeria or Iraq - nations which have limited scope to increase production. "I think it's going to be an increase, but it's just a matter of what's the magnitude", said Dominick Chirichella, director at EMI DTN.

Sources told Reuters on Thursday that Iran wants any increase to be justified on demand conditions and not dictated by outside external pressure, as even some of Saudi Arabia's traditional allies have accused the kingdom of bending too far to appease USA wishes.

Amid strong demand, the market has since tightened significantly, pushing up crude prices and triggering calls by consumers to increase supplies.

Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that OPEC's responsibility was to address consumers' worries.

-With assistance from Salma El Wardany, Annmarie Hordern, Manus Cranny, Elena Mazneva, Laura Hurst, Javier Blas, Grant Smith, Francois de Beaupuy and Golnar Motevalli. Off-topic, inappropriate or insulting comments will be removed.

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