For Nigeria and other members of the Organisation of the Petroleum Exporting Countries (OPEC) and their allies, a lot will be on their minds on Tuesday as they gather via teleconference to assess the latest developments in the global oil sector.
Top on the agenda in this Tuesday’s meeting will be the current bullish confidence in the oil market as Brent, the benchmark of Nigeria’s crude oil hit $70 on Monday, underpinned by the bright outlook for fuel demand growth in the third quarter.
However, the potential revival of the 2015 Iran nuclear deal threatens to add a significant amount of crude to the global market.
“Trading excitement often drives the market just before OPEC+ meetings and there is a confidence that the oil producer group will demonstrate supply restraint at its meeting on Tuesday,” Rystad Energy’s analyst Louise Dickson said in a note to BusinessDay.
He noted that a final decision in Vienna this week could bring some downward turbulence to oil prices but the impact should be mild as the oil market has had months to gradually start to price in the probability of an earlier return of Iranian oil supply to the market.
Talks over reviving a nuclear deal with Iran have been ongoing since April. An agreement between world powers and Iran could lead the U.S. to lift sanctions on Tehran, allowing it to boost global oil supplies.
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“OPEC+ will likely hold steady at tomorrow’s meeting, waiting to receive more clarity over the potential Iran deal, and instead make more bullish supply revisions to their programme at the group’s following get-together,” Dickson said
Recall, the Joint Comprehensive Plan of Action (JCPOA) put limits on Iran’s nuclear program in return for relief on economic sanctions, such as oil sales. But the Trump administration withdrew from the deal, blocking Iranian oil exports.
Analysts estimate lifting sanctions on Iran with a revived nuclear deal could add 500,000 bpd to 1.1 million bpd of crude and condensate to the market, putting downward pressure on oil prices.
With the Iran nuclear deal “seemingly on the cusp of being revived, the lifting of sanctions could see a further 1.1 [million barrels per day] of oil added to the market by the end of the year,” said James Swanston, middle East, and North African economist at Capital Economics, in a Thursday note.
That could prompt the rest of OPEC+ to “take a more tempered approach to raise output to ease any downward pressure on oil prices,” Swanston added.
“These exaggerated comments on Iran’s oil production capacity is just a signal to oil markets that Iran’s top priority is to boost its exports, how that impacts the price in the short term is of less importance,” Amena Bakr, Deputy Bureau Chief & Chief Opec Correspondent at energy intel.
Other analysts expect the oil group and allies like Russia, collectively known as OPEC+, to continue gradually loosening output limits. Under the current output agreement, production is due to increase by 350,000 barrels per day in June and by 441,000 bpd in July.
But prior OPEC meetings have surprised industry watchers in recent months. In March, OPEC+ shocked markets when it maintained quotas despite Saudi Arabia’s earlier reduction of 1 million bpd. And in April, instead of maintaining quotas in May as expected, OPEC+ backed a plan to start raising them.
The OPEC meeting comes amid signs of a climate-change reckoning in the energy industry.
The International Energy Agency issued a report in May that said the only way for the world to reach net-zero emissions by 2050 is for investors not to support any new oil, natural gas, or coal projects.
OPEC+ refuted the report, saying it had the ability to create “potential instability in oil markets if followed by some investors,” according to Reuters.
