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Iran: Oil To Fall To $40 If OPEC Fails To Reach Deal

Tsvetana Paraskova

A fractured OPEC is meeting later this week to discuss a deal to cut oil production—yet again—to rebalance the market and lift oil prices that have recently slipped to below most of the cartel members’ budget-balance points.

OPEC needs a unanimous vote to pass decisions such as curtailing production. Yet, Iran—one of OPEC’s biggest producers but also one of the most sidelined members in recent months—warns that the group is unlikely to reach an agreement on a sizeable cut of around 1.4 million bpd as some are suggesting. Such a failure to act decisively would send oil prices plunging to $40 a barrel, Iran’s OPEC Governor Hossein Kazempour Ardebili told Bloomberg in an interview.

The cartel and its Russia-led non-OPEC allies may not extend their cooperation pact either, according to Iran’s representative at OPEC—a position typically held by the second most powerful oilman in a cartel member after the oil minister.

Iran has repeatedly expressed frustration with the Saudi/Russia-led increase in oil production since June to offset what was expected to be a steep decline in Iranian oil supply with the U.S. sanctions on Tehran’s petroleum and shipping industries.

Iran’s oil exports indeed dropped by some 1 million bpd, but they are likely still holding onto above 1 million bpd, while U.S. waivers to eight Iranian customers allow buyers to continue purchasing oil at reduced volumes until the end of April next year.

Oil prices have plunged by around 30 percent from early October as the market started to fear an oversupply is building up again, due to record high production in Saudi Arabia and Russia, and an all-time high oil output in the United States, coupled with fears of slowing economic and oil demand growth.

“I doubt, with the failure they had in the last three months, that the declaration of cooperation gets extended,” Kazempour told Bloomberg, referring to the Saudi-Russia alliance.

Related: Are Oil Markets About To Turn Around?

“Why institutionalize a failure? And it needs unanimity to be extended,” he noted.

Iran, for one, will not take part in any cuts while there are U.S. sanctions on its oil, Kazempour said, adding that those who increased production should be the ones to cut, that is the Saudis and Russians and few Arab Gulf states like the UAE and Kuwait.

“Now they are asking others to share in the cut. Whoever increased, they should cut,” Kazempour told Reuters on Monday.

“The pilot and co-pilot crashed the plane and all 25 passengers are now in critical condition,” said Iran’s OPEC governor.

The ‘pilot and co-pilot’, however, agreed this weekend to extend the deal, Russia’s President Vladimir Putin said, although he admitted there isn’t an agreement on specific cuts, yet.

“But we, together with Saudi Arabia, will do this, and whatever final figure we will decide upon, we agreed that we will monitor the market situation and promptly respond to it,” Putin said.

While the general framework between OPEC and non-OPEC may be in place, Saudi Arabia will have to appease growing frustration at smaller members within OPEC and convince them to fall in line, in order to get a unanimous vote on some sort of production cuts, which may not even be worded as ‘reduced output’.

Related: The Saudi Dilemma: To Cut Or Not To Cut

Days before the December 6-7 meeting in Vienna, Qatar surprisingly announced on Monday that it would be quitting OPEC as of January 1, as it focuses on natural gas.

According to Iran’s Kazempour, Qatar is not the only one frustrated with OPEC’s recent decisions, especially the ones taken by the Saudi-Russia co-chaired Joint Ministerial Monitoring Committee (JMMC).

“There are many other OPEC members frustrated that the JMMC is deciding on production unilaterally and without the required prior consensus of OPEC,” Kazempour told Reuters.

Smaller OPEC members may need some convincing, but a higher price of oil is not an insignificant argument for many of the cartel members who can’t balance their budgets at $60 a barrel Brent.

It looks like Saudi Arabia and Russia are ready to continue managing the oil market and will have their way one way or another—if they can’t get consensus on a wording with ‘(…) million barrels per day’ of cuts, they can always bet on a vague statement of ‘market stability’, ‘declaration of cooperation’ to ‘adjust compliance levels’, open to interpretation.

By Tsvetana Paraskova for Oilprice.com

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