OPEC unity under threat over Saudi, Iran face-off

Things might soon start falling apart for 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 is driven by divergent opinions over whether a $70 barrel would send 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 budget needs $70 a barrel.
“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.
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 today’s 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”.
Saudi Arabia plans on using its surplus oil revenues to bolster the financial firepower of its $230bn sovereign wealth fund, shifting additional billions into the vehicle spearheading Crown Prince Mohammed bin Salman’s economic modernisation efforts.
“Iran’s oil minister claim is valid, which would also be an issue for discussion in the next OPEC and allies meeting; however it won’t affect the production cut agreement,” said Emmanuel Afimia , Energy analyst at Afimia consulting services.
This 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.
However, Shale producers are more dexterous than big OPEC producers, using modus operandi that allow them to increase or decrease production depending on the oil price.
Saudi Arabia has played down shale’s ability to upset the market and has touted OPEC’s alliance with the world’s largest crude producer, Russia, as a bulwark against U.S. output.
Jubril kareem energy analyst at Ecobank group said Iran and Saudi Arabia have always being at logger head over major international issues.
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.
“However they both have strong points; for example Iran’s position of lower oil price will reduce the threat of shale oil producers while Saudi Arabia point will always increase the revenue for oil,” kareem said.
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.
Russian Energy Minister Alexander Novak told state TV last month that prices around $64 a barrel were “satisfactory.”
Russia and nine other producers have joined OPEC’s production limits, cumulatively suppressing about 2 percent of the world’s crude output.
“If oil prices averaged $70 a barrel next year, it would result in an additional 600,000 barrels a day of U.S. production compared with $60,” said Artem Abramov, vice president for analysis at Norwegian consultancy Rystad Energy.
The International Energy Agency (IEA) said this week that shale production had already risen so much that demand for OPEC crude would remain below the cartel’s current production through 2020. That could pressure the group to limit output for longer than most members anticipated.
Anxieties about shale output will likely dominate OPEC’s next meeting in June in Vienna, OPEC officials say.
Later Monday, the Energy Information Agency (EIA) will issue its forecast on oil production from seven major shale regions for the month of April.
Meanwhile, data last week Friday did show that hedge funds and money managers cut their bullish bets on U.S. crude oil for the first time in three weeks.
“Rising production and inventory in the United States has been reducing fund sentiment since it peaked at the end of January,” ING commodities analysts said in a note.
Nigeria’s oil production on the other hand has recovered to 1.8 million barrels as at January 2018, according to OPEC data, from as low as 1.2 million barrels daily in the thick of militant disruptions.
The price of Brent crude, Nigeria’s benchmark grade, cooled 1.45 percent to $64.54 per barrel Friday, according to Bloomberg data.

 

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