US Emerges Loser in JMMC Meeting
The 10th meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC and non-OPEC producers was held in Algeria against the backdrop of US President Donald Trump’s tweet threatening some Persian Gulf oil producers.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” tweeted the US president.
In response, Iran’s Minister of Petroleum Bijan Zangeneh described President Trump’s tweet as the biggest affront to regional governments and nations allied to the United States.
“I hope that such threats would not strike fears among some of my OPEC colleagues to persuade them to implement President Trump’s orders,” he said. “OPEC is an organization independent of the US and I hope it will be so forever.”
Consensus on Output Cut
Iran’s OPEC governor Hossein Kazempour Ardebili, who represented Iran in the JMMC meeting in Algiers, said all participants in the meeting had insisted on remaining fully faithful to oil production cut.
“No figure was bandied about for output hike in the OPEC/Non-OPEC JMMC meeting,” he said.
OPEC was announced to have met its quota commitments at 118% while non-OPEC had remained committed at 119%. In 2016, OPEC and non-OPEC oil producers had agreed to cut their combined production by 1.8 mb/d in a bid to shore up prices. The OPEC/Non-OPEC agreement remains in effect up to the end of year.
Kazempour Ardebili said participants at the JMMC meeting decided to set up a committee comprising OPEC and non-OPEC states in order to follow up on the proper implementation of decisions adopted by the oil producing nations and review their commitment to their production quota. Such committee would regularly hold meetings inviting ministers and experts.
Iran’s governor for OPEC also dismissed the idea of cutting Iran’s oil exports to zero, saying: “We should not let OPEC shares go to non-OPEC members.”
He said that conditions prevailing in the oil market and the status of oil producers did not allow finding a replacement for Iran’s crude oil.
“Global demand for crude oil will keep growing in case the US imposes sanctions on Iran’s oil exports for their reduction. But the question here is to know who could step into the market to make up for probable supply shortages,” Kazempour Ardebili said.
“Some countries like Saudi Arabia claim to have extra capacity, but we have so far not seen any increased supply or extra capacity on their part,” he said.
“Saudi Arabia may release from its petroleum stocks on the market and it may be possible in coming months in winter due to lower domestic consumption, but it could not replace Iran’s oil by itself. Therefore, in order to satisfy the US president, other parties that are able to supply extra oil jump to the fray.”
Kazempour Ardebili said: “Russia has currently extra oil capacity. It had earlier cut its output by 300,000 b/d and has now returned about 265,000 b/d to the market. I don’t think Russia would have much extra oil to supply on the market.”
“We know that production declines in some northern areas like Siberia in winter and Russia cannot continue [supplying extra oil]. Everyone is now facing a litmus test. We think that even all producers are not able to supply as much oil as demanded by Donald Trump, the president of America,” he added.
“Therefore,” said Iran’s governor for OPEC, “Trump has to show some flexibility vis-à-vis buyers of Iran’s oil, for instance up to a ceiling of 1.5 mb/d or 1.2 mb/d.”
“Given the present circumstances, Trump has no option but to back down from his plan to fully halt Iran’s oil exports,” he added.
“However, over a short period of time like for two months, they may tap their own strategic petroleum reserves and supply oil to the market to supplant Iran’s output. But that would not be possible in the long-term,” Kazempour Ardebili said.
“OPEC producers are not able to provide an extra 2.3 mb/d of oil up to November [when US oil sanctions on Iran take effect] to make up for Iran’s oil unless they decide to dip into their reserves, which would not meet market demand because it would be a short-term measure causing price hikes,” he added.
Kazempour Ardebili said that Tehran had so far resisted attempts even before US sanctions come into effect.
“Iran has maintained its production at the level of 3.805 mb/d and is sticking to this production. It means that Iran’s oil production is 7,000-8,000 b/d higher than its OPEC quota,” he said. “In the meantime, our domestic refineries are producing at full capacity and it is continuing.”
He said that Iran’s refined petroleum products would increase once new phases of the Persian Gulf Star Refinery become operational. That would help Iran export refined petroleum products to neighboring nations.
“We have also developed methods for controlling domestic consumption in order to preserve exports levels and meet national demand,” said Kazempour Ardebili.
He warned that the persistence of US sanctions against Iran would drive up prices sharply. "That would incite the international community against the US and lay the blame on it, but we have to wait and see what would happen next."
Trump Has No Option but Flexibility
Iran's governor for OPEC also played down the significance of President Trump's efforts to cut Iran's oil exports to zero.
"It seems that he will not succeed in his attempt and he will have to back down from his positions and show flexibility with regard to some consumers of Iran's oil because other suppliers of oil could not practically supplant Iran for oil shortages and that would probably push up prices," said Kazempour Ardebili.
"For this reason, the Americans are likely to grant waivers to different countries for buying oil from Iran. The ceiling for such waivers may be 1 mb to 1.2 mb barrels. This issue has happened in the past, in 2014 and 2016," he added.
Kazempour Ardebili touched on the honoring of the 2016 agreement between OPEC and non-OPEC producers, saying: "Iran was earlier in agreement with a 1.8 mb/d decline in OPEC/Non-OPEC oil output and had signed the agreement. It is not opposed to it either, and approves the agreement for the release of stocks."
"This agreement was signed in 2016 and two years have since passed. Members have since tried to consume supply glut which had been accumulated in the market from 2014 to 2014, causing price crash," he said.
Kazempour Ardebili said Iran had no role in the stocks because it was under sanctions during that period.
"At that time OPEC and non-OPEC agreed to reduce their oil output by 1.2 mb/d and 600,000 b/d respectively, totaling 1.8 mb/d annually," he said. "When there is talk of 100% commitment, it means such amount must be deducted from the output of all countries. This amount was divided between OPEC and non-OPEC members in order to reduce their oil production," he added.
Kazempour Ardebili said the oil producing nations have agreed on cutting about 360,000 b/d from their output, which has been endorsed by Iran.
Asked if oil prices would fall in global markets in case 350,000 b/d of extra oil would hit the market, Iran's governor for OPEC said: "What may be said about oil prices is that this price has rather been under the impact of psychological factors, propaganda and sanctions threats."
"These factors have influenced oil market to the extent that even production hike has not reduced prices," said Kazempour Ardebili.
"Oil stocks will finally squeeze prices and due to such conditions, oil prices are likely to move towards $60 a barrel. Therefore, OPEC members are mindful of this issue. Of course, the parties which have been asked by the US to raise output are trying to supply some extra oil on the market in a bid to appease the Americans and at the same time they tolerate the pressure resulting from prices," he added.
Referring to OPEC member states' view of oil price, he said: "All nations are making efforts to maintain the price at about $80."
"As far as we know, OPEC members, including Saudi Arabia, favor $80," said Kazempour Ardebili.
He said that some countries may agree to modify their oil output due to political motivations and in harmony with US sanctions.
"Saudi Arabia and the United Arab Emirates may do so. Of course, Russia, which has reached an agreement with OPEC, may raise output to some extent in a bid to stabilize its share in the future and then proceed with the same policy," he added.
"In any case, OPEC quota should not be given to non-OPEC nations. We are not member of market monitoring committee. This committee comprises six members, but we are legally authorized to attend its meetings and of course we have no right to vote. However, we attended the meetings in a bid to counter possible action against us. Apart from six member states, others attended to mark the anniversary of the 2016 deal and not for hearing a pro-Iran or anti-Iran agenda," said Kazempour Ardebili.
Among US objectives are ratcheting up the pressure on oil producers to raise output and prepare markets for oil sanctions on Iran.
OPEC neither Cartel nor Monopoly
Mohammad Sanusi Barkindo, OPEC Secretary General, said at the JMMC meeting that the Organization of the Petroleum Exporting Countries was neither a cartel nor a monopoly.
"I might add here that this transparency extends to everything we do as an Organization. As such, it should be evident that OPEC is neither a monopoly, nor a cartel, but a responsible global body that consistently strives to maintain stability in the oil markets, in the interests of both producers and consumers," he said. "We have a vested, mutual interest in the healthy growth of the global economy."
"Being back here in this magnificent city brings back so many memories of our extensive efforts in 2016 to restore stability in the global oil market that had rapidly sunk into a deep decline. Indeed, the industry had not seen such a downward spiral in decades," said Barkindo.
"Thanks to these courageous efforts and an unprecedented cooperation that transcended borders, there will be a chapter in the history books of this industry that will have a title such as 'The Algiers Accord—the turning point towards a new era of cooperation in the international oil industry'," he added.
"Today we are holding the 10th Meeting of the JMMC, a major milestone, and let us not forget the 10th anniversary of our Conference in Oran, where OPEC proactively rose to the grave challenges presented by the global financial crisis. Algeria, and indeed Algiers, has become the “city of turning points” for our industry," he said.