Iran Joins Saudi Arabia Shunning Output Curb at OPEC Meeting

  • Saudi Arabia says Iranian return will do `nothing' to market
  • Venezuela minister warns of catastrophe for oil prices

How Quickly Can Iran Boost Oil Output?

Iran joined Saudi Arabia in saying it would keep on pumping despite oil prices hovering near a six-year low, giving the strongest signal yet that OPEC wouldn’t act at the group’s meeting in Vienna to curb the global supply glut.

As ministers from the Organization of Petroleum Exporting Countries gathered in Vienna, Iran said it would boost shipments after the expected lifting of international sanctions next year and wouldn’t accept any curbs until it restored about 1 million barrels a day of output. Saudi Arabia said it didn’t feel obliged to cut production, which is running close to a record.

Bijan Namdar Zanganeh at the OPEC meeting

Photographer: Lisi Niesner/Bloomberg

“We don’t expect OPEC to do anything,” Iran’s Oil Minister Bijan Namdar Zanganeh said on Friday as the group’s ministers sat down to discuss policy, including how to fit new member Indonesia into its output ceiling. "It seems that the global market will grow demand” amid oversupply of 1.5 million to 2 million barrels a day, he said.

With oil prices near a six-year low, cash-strapped countries including Venezuela, Ecuador and Algeria are pressuring Saudi Arabia to cut production. A year ago, Riyadh spearheaded a decision to maintain output and fight for market share rather than cut production to sustain high oil prices. The move helped to send Brent crude, the global benchmark, down to $42 a barrel from near $100.

Saudi View

The Saudis, the world’s largest oil exporters, have stuck to their one-year-old view that any output cuts won’t work unless big producers outside OPEC, including Russia and Mexico, participate. If prices recover sharply, it could revive some U.S. shale production, displacing OPEC crude.

Saudi Arabia is willing to cooperate with anyone to re-balance the market, Oil Minister Ali al-Naimi told reporters on Friday after OPEC ministers arrived to discuss policy. The pressure isn’t solely on Saudi Arabia for output cuts, he said, adding that Iran’s return will do “nothing” to the market as demand for oil will strengthen next year.

OPEC May Surprise by Cutting Crude Production: Lennox

Increasing Demand

“Demand is going to increase anyway,” according to al-Naimi, who said Saudi Arabia hasn’t cut investment. “Nothing has been curtailed. We have a responsibility to maintain our 12.5 million-barrels-a-day capacity.”

Russia, Mexico and other big producers outside OPEC have given no indication they would agree to any OPEC-led output cuts. Russian Energy Minister Alexander Novak said Thursday that the country doesn’t see a production cut as viable.

Venezuela is proposing taking 1.5 million barrels a day of production out of the market.

“All the countries, including the Saudis,” are very worried, Venezuela’s Energy Minister Eulogio Del Pino told reporters on Friday, citing a decline in oil prices after the past three OPEC meetings. “We estimate that in the second quarter of next year, inventories will reach 100 percent and we see a catastrophe in the prices"

Informal Gathering

Ecuador Oil Minister Carlos Pareja said an informal meeting of his OPEC counterparts on Thursday -- unusual in recent years and held in a hotel rather than at the group’s headquarters -- was "difficult.”

Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu said Saudi Arabia didn’t propose a cut at the meeting on Thursday. A solution to the market slump requires a global effort as OPEC pumps less than half the world’s oil, Kachikwu said on Friday in a Bloomberg TV interview in Vienna. Despite differences of opinion among members, OPEC has “common purpose” to find a solution to the price rout.

The divisions are a sign of how a year of low prices -- and the prospect of more months of cheap oil -- are hurting OPEC nations. The group’s annual revenue may fall to $550 billion from an average of more than $1 trillion in the past five years, the International Energy Agency said Nov. 10.

Conciliatory Tone

Iran has repeatedly said OPEC should reduce production to make room for its return to the market. OPEC pumps four-in-10 barrels worldwide.

Faced with dismay among members unable to balance their books, Saudi Arabia has adopted a conciliatory tone, promising to listen to all before a policy decision is made. OPEC watchers said the divisions make it more likely the group will re-affirm its current production ceiling of 30 million barrels a day on Friday.

"OPEC is likely to stay on course on December 4," said Gary Ross, chairman of New York based consultancy Pira Energy. OPEC needs consensus among all its members before changing the group’s output target.

The official ceiling is, however, largely symbolic as countries produce above it. OPEC pumped 32.1 million barrels a day in November, exceeding its target for an 18th month, according to a Bloomberg survey of companies and analysts. The overproduction is likely to worsen next year as Iran plans to pump an additional 500,000 barrels a day within weeks of international sanctions being lifted.

Indonesia Return

"We expect OPEC will likely maintain its production ceiling at the current level or adjust it upward slightly to reflect Indonesia’s re-joining the group while maintaining the goal of retaining market share in general," said oil consultancy Wood Mackenzie Ltd.

Indonesia, which left OPEC in 2008, has returned to the group. The country pumps roughly 800,000 barrels a day, so including it would bring OPEC’s official ceiling nearer to 31 million barrels a day.

Brent crude closed on Wednesday at $42.49 a barrel, the lowest since 2009, when demand slumped during the global financial crisis. Brent futures climbed 1.9 percent at $44.67 as of 1:40 p.m. in London on Friday. International oil traders have said that unless OPEC reverses course, supplies will continue to overwhelm demand for months.

If OPEC keeps its production stable, Brent crude could drop below $40 a barrel in the short term, said Deshpande Abhishek, oil analyst at Natixis SA. “We are looking at an oversupplied market in 2016 that will put a lid on prices,” he said on the sidelines of the OPEC meeting in Vienna.

Before it's here, it's on the Bloomberg Terminal.