Divided OPEC Oil Cartel Braces For Iranian Crude

OPEC ministers ended their policy meeting in Vienna on a discordant note, unable to decide as a group how much it should pump in aggregate.

“We are only 35 percent of the producers and there are still 65… percent producers out there”, said conference president Emmanuel Ibe Kachikwu.

One possible scenario is for OPEC to recognize the fact that members are pumping well in excess of the formal ceiling, and raise the group’s collective quota from 30 million bpd to 31.5 million bpd, in line with the current volumes, one source said.

“Next year, we foresee growth of 1.3 million barrels per day to average 94.1 million barrels per day, with most of this growth coming from non-OECD countries”, Kachikwu added.

Poorer members called for OPEC’s production to be cut but Saudi Arabia – the world’s biggest producer – refuses to slow the pace.

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.

For while much has been made of the “breakeven” cost of oil production over the previous year, it is the “cash cost” which determines the actual floor for oil producers. Prices fell 4.2 per cent on the week.

Ultimately, OPEC leader Saudi Arabia decided not to answer desperate pleas from less affluent members like Nigeria and Venezuela to cut production.

Analysts at Energy Aspects say the kingdom is “only likely to cut once it can influence the market again” – a scenario that is unlikely before the second half of next year considering present plentiful supply.

After Friday’s OPEC decision “everyone does whatever they want”, said Iranian Oil Minister Bijan Namdar Zanganeh.

The official ceiling remains 30 million barrels a day, but for more than a year now there has been overproduction ranging from just over a million barrels a day to almost twice that much. “Practically, there is now no ceiling for OPEC”, he said.

Ed Cowart, of Eagle Asset Management, points out that uncertainty over global supply was the “justification for $100-per-barrel oil a couple of years ago”.

In examining the current status of the oil market, the Conference respected the input and ideas of all Member Countries to find ways and means to deal with the challenges they are facing in the global oil market today.

The agreement to keep output near record highs was largely expected, but wiped out any remaining hope for bulls that production cuts could push prices higher, sending ripples across wider markets. It said that member countries were committed to the goal of full, effective and sustained implementation of the United Nations framework convention on climate change.

OPEC signaled no respite from the global oil glut that has driven prices to a six-year low.

OPEC’s decision to keep production at near record levels has done Britain’s oil industry in the North Sea no favours either.