No Nod Needed for Iran Oil Return
Oil market, which once experienced $100 a barrel price, is now dealing with $60. But there is still fear that the prices may fall to $40-45, which the market saw in January. In those days, 12 OPEC member states were expected to make a decision to revive the market in their 166th ministerial meeting. However, OPEC decided to keep its production ceiling unchanged.
Saudi Arabia favored rollover more than other member states. Although some members expressed concern about further price fall and US shale oil strength, Riyadh refused to step back from its position.
Conditions have not changed much. Oil prices has somewhat recovered. The 167th ministerial meeting was held while the 166th meeting was still under debate by OPEC ministers.
Saudi Arabia, a tough opponent of OPEC production ceiling cut, does not seem to have changed its policy. After years of sanctions and reduced production, Iran – a traditional rival of Saudi Arabia – hopes to be able to raise its production and win a bigger share of the market in the near future.
To that effect, Iran’s petroleum minister, Bijan Zangeneh, called on OPEC member states to let Iran in.
Iran Writes to OPEC
Upon his arrival in Vienna to attend the 167th ministerial meeting of OPEC, Zangeneh revealed that Iran has written a letter to its fellow OPEC members about its future status.
In the letter, Iran said it would raise its production to the pre-sanctions level as soon as the sanctions are lifted.
“In this letter, we have asked OPEC to take this issue into consideration in its decisions. In other words, if OPEC members want the prices to remain at the same level, we expect [them] to open the way for the entry of Iran’s oil,” said Zangeneh.
The Iranian minister said the country would not wait for anyone’s permission to raise its output.
Later in Vienna, Zangeneh told a meeting that Iran would immediately raise its exports by 500,000 b/d after sanctions are lifted.
“OPEC members should open more place for Iran’s oil barrels,” he said.
Zangeneh said Iran’s oil return to the market would be gradual, but would not take long.
“One month after the annulment of sanctions, we will supply 500,000 b/d more oil, which would reach 1 mb/d after 6 to 7 months,” he said.
“I’m sure that OPEC member states would accompany us and they would take into account Iran’s return because further oil supply by Iran would not leave any negative impact on the market,” said Zangeneh.
Saudi Arabia and Iran Return
Saudi oil minister, Ali al-Naimi, had travelled to Vienna to say that his country is fully happy with the market conditions. He made clear that Saudi Arabia is happy with the current supply and demand in the market and is not worried about the return of Iranian and Libyan oil to the market.
“You can see that I am not stressed, that I am happy,” he told reporters in the Austrian capital where OPEC is headquartered.
“When OPEC decided not to cut output in November, Saudi Arabia outlined its strategy to moderate runaway growth from high-cost non-OPEC suppliers, as well as stimulate global oil demand. Saudi Arabia seems to be on track to achieve these goals,” Barclays analysts said.
Russia and Output Hike
All OPEC challenges are not limited to production ceiling. Russia, a leading non-OPEC oil producer, has increased its production by 200,000 b/d in the past one year. According to the latest data released by Russian Energy Federation, the country’s production has exceeded 1.71 mb/d.
The increase in Russia’s oil output came after Russian Minister of Energy Alexander Novak called on OPEC members to agree on cutting production ceiling.
Novak’s remarks draw anger from OPEC Arab member states. Qatari energy minister and Kuwaiti oil minister came out in support of Saudi Arabia’s position and insisted on OPEC ceiling rollover in the 167th ministerial meeting.
Iran, Iraq, Algeria, Ecuador and Venezuela openly called for a 1.5 mb/d production cut. But Saudi Arabia, United Arab Emirates, Kuwait and Qatar wanted the output ceiling to remain unchanged.
There were worries that insistence on the maintaining the current production ceiling would cause a fresh fall in oil prices in the world market.
Saudi Arabia, Qatar, UAE and Kuwait make up 17% of OPEC’s total production and these countries had made clear their position ahead of the 167th ministerial meeting in Vienna.
A Reuters monthly survey showed that OPEC pumped a two and a half year high of 31.22 mb/d in May.
The boost put OPEC production further above its target of 30 mb/d, underlining the focus of top exporter Saudi Arabia and other key members on market share.
“OPEC continues to produce well above target, and also well above demand for its oil,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
OPEC Secretary-General Abdalla Salem El-Badri, speaking to reporters after the meeting, said he saw the oil market as “very positive”.
“The economy is growing, demand is growing. We see non-OPEC supply is not growing as in the past," El-Badri said.
The success of Saudi Arabia and its allies in imposing their view on OPEC to roll over its output ceiling is no important victory for them. Many analysts believe that if oil price falls due to this decision, Saudi Arabia will be harmed more than Iran.
Loss for Saudi Arabia
Fereidoun Barkeshli, Iran’s former national representative to OPEC, said oil market conditions are unlikely to recover before the end of 2016. He noted that further oil price fall would inflict maximum loss on Saudi Arabia and minimum loss on Iran.
Noting that the oil price fall over the past seven to eight months has caused a loss of nearly $1 trillion on OPEC and other oil producers, he said: “The most loss has been inflicted on Saudi Arabia, the largest producer, and the least on Iran whose exports are limited.”
OPEC Concluding Statement
Following its 167th ministerial meeting on June 5, OPEC released a statement. Excerpts from the statement are as follows:
- Agreeing on the importance of maintaining dialogue with other oil-producing countries, the Conference affirmed the technical meeting of oil and economic experts from both OPEC and Non-OPEC countries, held on 12th May 2015, in Vienna. The meeting had discussed, inter alia, oil market fundamentals and the global economy, with participants concluding that market stability remains a common objective for all producers, attainable through cooperative effort. Participants agreed to convene again before the end of the year.
- The Conference reviewed the oil market outlook, as presented by the Secretary General, in particular the demand and supply projections, and the outlook for the second half of 2015. The Conference noted that the global economic recovery had stabilized, albeit with growth at moderate levels. In the current year, GDP growth is projected at 3.3%, with this expected to be at a slightly higher level of 3.5% for 2016.
- Recording its continued concern over market volatility and the challenges faced by the global oil industry as a whole, the Conference observed, further, that the sharp decline in oil prices witnessed at the end of last year and the start of this year – caused by oversupply and speculation – had now abated, with prices moving slightly higher in recent months.
- In view of the foregoing, the Conference resolved to maintain the 30 mb/d ceiling and urged Member Countries to adhere to it. Member Countries, in agreeing to this decision, confirmed their commitment to a stable and balanced oil market, with prices at levels that are suitable for both producers and consumers.
Oil Giants Ready to Return
OPEC ministerial meeting provided a chance for chief executives of oil giants to hold talks with Iran’s Zangeneh and discuss their possible return to Iran after the removal of sanctions.
The start of cooperation between Iran and oil giants necessitates the settlement of disputes about delayed payments and other issues.
After meeting Zangeneh, Lukoil’s CEO Vagit Alekperov told the Russian News Agency (TASS) in Vienna that Lukoil is interested in returning to Iran after sanctions are lifted.
He said: “We are currently exploring opportunities for entering Iran after sanctions are lifted. Lukoil discovered the Anaran field in Iran in its time. Certainly, we are interested in returning to that field.”
Along with Norway’s Statoil, Lukoil was prospecting for oil in Iran’s Anaran block before it pulled out of the project due to the imposition of sanctions on Iran’s energy sector by the United States and the European Union. Lukoil reportedly suffered a $63 million loss after the withdrawal.
"We are highly optimistic and look forward to proactive working in Iran after removal of sanctions," Lukoil’s CEO said.
The French energy giant, Total, also said its return to Iran is achievable if sanctions are lifted and an agreement on the nuclear program is reached.
Total CEO Patrick Pouyanne said: “We have a long history of working in Iran; we have developed some projects together,”
“We have history with Iran. I know that Total will be favorably received. But first, let's see what will happen on the political scene,” he added.
For his part, Ben van Beurden, chief executive officer of The Hague-based Shell, said: “Iran is a wonderful country with a fantastic resource base.”
“As soon as there is legitimate opportunity, we will be looking at Iran,” he added.
BP CEO Bob Dudley said the London-based company would be “very much” interested in investing in Iran when sanctions go. Still, with talks between the US and Iran over their nuclear dispute ongoing, any talk of deals remains premature, he said.