Things might soon start falling apart for the Organisation of Petroleum Exporting countries (OPEC) production cut as Saudi Arabia and Iran are set for another face-off over determining the best price level for the commodity.
The rift is driven by divergent opinions over whether a $70 per barrel price would sends U.S. shale companies into a production fury that could cause prices to crash; Iran wants OPEC to work to keep oil prices around $60 a barrel to contain shale producers, while Saudi Arabia’s budget needs $70 a barrel.
Iran wants the price below $60
Iran’s oil minister, Bijan Zanganeh is advocating for a price below $60 to wade off the threat of shale oil producers.
“If the price jumps to around $70; it will motivate more production in shale oil in the United States,” Iran’s Oil Minister, Bijan Zanganeh told the Wall Street Journal.
Saudi Arabia wants the price above $70
The International Monetary Fund (IMF) said last year that Saudi Arabia needed oil prices to be at $70 a barrel in 2018 to break even, which is above the current price of $65 a barrel.
Mohammed al-Jadaan, Saudi finance minister, told an audience at the World Economic Forum in Davos in January that, “we welcome higher oil prices”.
Beyond the oil price
Saudi Arabia and Iran are also at odds politically. They have supported different sides in the Syrian civil war, the Saudis have lobbied for tighter sanctions on Tehran, and Riyadh accuses Iran of funding and arming Yemeni rebels.
The clash will top OPEC agenda in next meeting
The disagreement could see the cartel start unwinding the cuts as early as June, when it will meet with its partners to discuss progress and next steps.
The Russia factor
Although it’s not a member of OPEC; Russia is likely to be a significant factor in any OPEC oil-price deliberation; Russia’s production cuts have given it special influence with the cartel. Russia and nine other producers have joined OPEC’s production limits, cumulatively suppressing about 2 percent of the world’s crude output.
DIPO OLADEHINDE
