Iran, Saudi Arabia spar over OPEC production plan

“A deal will be extremely challenging to deliver given political differences between members, particularly Saudi Arabia and Iran, and several Opec nations actively trying to increase production – Iran, Iraq, Nigeria and Libya”, says Spencer Welch, director at US-based consultancy IHS Energy.

Oil prices fell over 1 per cent on Tuesday on market jitters over whether producer cartel OPEC would be able to hammer out a meaningful output cut during a meeting on Wednesday, aimed at reining in a global supply overhang and propping up prices.

In recent weeks, Riyadh offered to cut its own output by 0.5 million bpd, according to OPEC sources, and suggested Iran limit production at below 4 million bpd. Tehran has sent mixed signals including that it wanted to produce 4.2 million bpd. The world’s largest oil exporter outside OPEC wants the cartel to first agree on a production cut within the organization.

Iraq meanwhile has said it will cut output but that it is short of money needed to fight Islamic State extremists.

Opec now consists of 14 members, more than half of them in the Middle East and North Africa, including the organisation’s biggest player, Saudi Arabia. “The problem for Saudi Arabia is that this isn’t the 1980s and 1990s, when it could use its clout and expect others to follow”.

Oil dropped almost 4 percent the previous session over disputes between Saudi Arabia, Iran and Iraq regarding details of the planned output cut.

One of Saudi Arabia’s main allies, UAE Energy Minister Suhail bin Mohammed al-Mazroui, said on Tuesday the market would indeed rebalance itself within six months although an output deal would help speed the process. On Sunday, Saudi oil minister Khalid Al-Falih for the first time floated the possibility of leaving Vienna without an agreement.

Also at the start of the week, Iraq´s own Energy Minister reportedly said he was “optmistic” that a deal would finally be reached. “I don’t know. Let’s see”.

“A production cut talk is likely to see a deadlock, especially with intransigence from various OPEC members”, said Barnabas Gan, an economist at the Singapore-based bank OCBC. However, the Kremlin did not rule out a meeting at an unspecified later date, as Opec continues to grapple with internal disagreements over it proposed cut of 1.1 million bpd.

Brent North Sea crude was down $1.86 to $46.38.

Meanwhile, Boutarfa said that if OPEC members agree, oil prices will reach 50-60 USA dollars per barrel by next year.

Market Leader reports that global oil prices are going down once again.

The price fall started in mid-2014, yet USA production rose in the following year – when prices were sharply lower.

One of the key hurdles for the production accord is Russian Federation, which isn’t a member of OPEC.

So Opec would need to make more cuts if they are to actually implement an agreement consistent with this new target.