June 21, 2018, by Golnar Motevalli, Wael Mahdi and Grant Smith
Iran continued to reject any increase in oil production from OPEC and its allies, casting doubts on Saudi Arabia and Russia’s efforts to get a deal that would aid consumers by alleviating high prices.
At talks in Vienna on Thursday, ministers from some of the world’s largest oil producers failed to secure the sought-after compromise that would allow the cartel to ease back on its production cuts. While Iran alone can veto any change to the group’s output policy, there is historical precedent for the Saudis to act alone and increase supply when they see an urgent need.
“It wasn’t a good meeting,” Iran’s Oil Minister Bijan Namdar Zanganeh told reporters after walking out of the meeting of the Joint Ministerial Monitoring Committee. “There were proposals but I don’t think we can reach an agreement.”
The talks in the Austrian capital were the latest steps in a process that has whipsawed oil markets for weeks. Saudi Arabia and Russia’s desire to roll back production cuts has encountered fierce opposition from Iran and Venezuela, while U.S. President Donald Trump has lobbed the occasional rhetorical bomb at the cartel on behalf of consumers.
The Organization of Petroleum Exporting Countries will meet again on Friday to discuss output. If the Saudi position were to prevail, it would allow the cartel and its allies to partially offset the impact of the collapse in Venezuela’s oil industry and feed fast-growing demand — two factors that played a big part in Brent crude’s surge to above $80 last month.
Failure would leave the kingdom and its Russian ally with the choice of acting alone to increase production — breaching the historic agreement that ended a three-year oil slump — or do nothing a risk surging prices and supply shortages in the second half of the year.
The odds of OPEC reaching a deal seemed to be improving through the week. Iran appeared to soften its position, going from outright rejection of any increase to a willingness to discuss numbers. Saudi Arabia had put forward a plan that would add 600,000 barrels a day — about 0.5 percent of global supply — smaller than the 1.5 million boost Russia had been proposing.
“Our customers have spoken loudly and we must listen to them,” Saudi Energy Minister Khalid Al-Falih said before the ministerial talks on Thursday. He warned his fellow oil producers about rising consumer anxiety and the potential for high prices to have a negative impact on demand.
Oil prices fell in London after Iran’s walkout, with benchmark Brent crude closing 2.2 percent lower at $73.09 a barrel.
Ministers from the group’s other members continued their discussions after his departure, according to one OPEC delegate. They were focusing on four scenarios, adjusting the group’s daily quota higher by 1 million, 1.5 million or 1.8 million barrels, the person said.
Any of those proposals would result in a smaller volume of oil flowing to the market than the headline number suggests because several countries are unable to increase output. For example, the 1 million barrel-a-day increase would translate to just 600,000 barrels a day of crude flowing back on to the market, according to Bloomberg calculations based on data from the International Energy Agency.
The only route to a production boost that Iran has publicly suggested — allowing the handful of countries that have voluntarily cut deeper than necessary to restore some output — would deliver far less extra oil to the market than any of those proposals.
Trump’s involvement in pressing for OPEC to act — which in addition to his tweets include a behind-the-scenes request for a 1 million-barrel-a-day supply hike — could make it difficult for Tehran to accept a compromise. Zanganeh has said the U.S. president is to blame for high prices because of his decision to reimpose sanctions on Iran.