Iran and Saudi Arabia unlikely to cut oil production

Oil prices have dipped after hydrocarbon producers Saudi Arabia and Iran both cast doubts on a possible cut to production at next month's OPEC meeting.

MENA

4 min read

The New Arab & agencies

26 August, 2016

Saudi's energy minister refuses to advocate a cut in output [Getty]

Oil prices dropped when petro-giants Saudi Arabia and Iran cast doubts of a cut in production, after OPEC members agreed to meet next month in Algeria.

Iran wants its pre-sanctions share of the crude oil market, Oil Minister Bijan Zanganeh said on Friday.

Meanwhile, rival Saudi Arabia has also cast doubt on whether production should be cut, ahead of the meeting between oil giants next month.

"Iran had no role in disrupting the stability of the oil market and after the (lifting of) sanctions we seek to revive our share in the global crude market," he said, quoted by the ministry's SHANA news service.

Zanganeh had given a brief boost to world prices on Thursday after announcing he would attend the informal OPEC meeting on a possible output freeze with non-cartel producer Russia in late September.

But on Friday he insisted that there could be no talk of Iran abandoning its ambitions to restore its market share after last year's nuclear agreement with world powers led to the lifting of sanctions on its oil exports.

"Iran will cooperate with OPEC on improving prices and the state of the crude market, but we expect our right to restore our lost market share in the market to be considered," Zanganeh said.

"Iran has made its sacrifices for the market and it's no longer the time for Iran," another Iranian website, Mizan Online, quoted him as saying.

Tehran says it has doubled its exports of oil and gas to 2.7 million barrels per day (bpd) since signing the nuclear deal in July last year.

Its total output has risen from 2.7 million bpd to 3.85 million bpd, close to the level before international sanctions were imposed in 2012.

Casting doubts

Oil prices dipped following in Asia on Friday after Saudi Arabia's oil minister cast doubt on the need to cut output, making it likely the global supply glut will continue.

The commodity rallied for seven straight sessions and entered a bull market - a 20 percent rise from recent lows - last week after OPEC and Russia announced plans to discuss the supply crisis, which has hammered the crude market for more than two years.

Prices have taken a beating this week on concerns about the chances of success at the Algeria meeting, but they turned higher Thursday when Iran said it would join in, clearing up days of uncertainty over its attendance.

However, OPEC kingpin Saudi Arabia's energy minister Khalid al-Falih revived worries about the success of the gathering.

I don't believe that an intervention of significance is required. I certainly don't advocate a cut.
- Khalid al-Falih, Saudi Arabia's energy minister

In an interview, he told Bloomberg News: "I don't believe that an intervention of significance is required. I certainly don't advocate a cut."

But he added that a "freeze signifies that everybody is content with where the market is today and they want it to be trending in that direction".

At about 6:30am GMT, the US benchmark West Texas Intermediate for October delivery was down 11 cents at $47.22, while North Sea Brent was down 20 cents at $49.47.

A previous OPEC attempt to freeze output collapsed in April largely because of Iran's refusal to join talks, having just emerged from international sanctions and keen to maximise its oil revenues.

However, even if a deal is reached in Algeria, there are doubts about the impact a production cap may have on an already oversupplied market.

"Most of the OPEC countries are sending a signal that they're open to freezing production, but you have to remember that most of them are producing at peak levels," BMI Research oil and gas analyst Peter Lee told AFP.

"Even if producers come to an agreement, the freeze is at a very high level."

Lee added that he is "personally quite sceptical" about whether producers can come to an agreement in Algiers.

"It's not just the matter of a production freeze or a cap, but there are geopolitical concerns involved too, especially when it comes to Iran and Saudi Arabia," he said.

Oil producers such as Venezuala and Algeria have been hit hard by low prices, as have other countries which relies on hydrocarbons for government expenditure.