While OPEC is officially communicating that it is ‘deeply optimistic’ that it could reach a deal to stabilize oil prices, and simultaneously scolding industry observers for being too quick to judge and express skepticism, behind closed doors, two of OPEC’s heavyweights and bitter regional rivals – Saudi Arabia and Iran – are reverting to their old ways of posturing with threats that neither will back down in the name of the greater (OPEC) good and let the other have their way.
At meetings between OPEC-only and non-OPEC experts last week, it has just been disclosed that Saudi Arabia and Iran went at it again. Saudi Arabia waved its oil weapon, strong-arming the cartel with threats of bringing down crude prices by increasing its own oil production should Iran continue to refuse to participate in the cut.
According to OPEC sources, Saudi Arabia offered to cut to around 10.2 million bpd from the summer peak output of 10.7 million bpd if Tehran agreed to freeze at 3.6 million-3.7 million bpd. Which Iran did not.
“The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting,” according to an OPEC source, as quoted by Reuters. Ironically enough, shortly after this came out, it was denied by OPEC secretary General Barkindo and contradicted again by another senior OPEC official.
Saudi Arabia – which went on a mission to raise its market share and wage war on higher-cost producers in 2014 – has been ramping up output steadily since then, flooding the market with crude oil and exacerbating the oil glut.
Iran, on the other hand, apart from harshly criticizing the Saudi pump-at-will tactics while it was under international sanctions itself, is now fully intent to return to its pre-sanction oil production and export levels. Tehran is not giving up on its stance that it should be exempt from any production cuts that OPEC producers may have to make to fit the cartel’s total production into the 32.5 million bpd-33 million bpd preliminary range that it had set in Algiers.
According to OPEC’s Monthly Oil Market Report from October, the organization’s crude oil production averaged 33.39 million bpd in September, up by 220,000 barrels compared to August, secondary-sources figures showed.
Those same figures placed Saudi Arabia’s production at 10.491 million bpd, and Iran’s output – at 3.665 million bpd.
According to the Reuters sources at last week’s meeting, the Saudis told the Iranian delegation that Iran should freeze at the 3.665-million-bpd level that OPEC has estimated.
Iran, for its part, reported its production was 3.85 million bpd for September. That same month, Tehran had asked OPEC to allow it to produce 12.7 percent of the organization’s total output, which would be the amount Iran was pumping before the sanctions.
Iran is still saying it will cap only when it reaches that threshold, which is 4.2 million bpd, Reuters reports. Tehran is also pointing the finger at the Saudis, countering their ‘should-freeze-now’ threat with the argument that Riyadh has increased production by nearly 1 million bpd since 2014 and is now most kindly and generously offering to cut just 400,000 bpd to take one for the team in order to reach that production deal.
According to Reuters sources who were present at the meeting, even Saudi Arabia’s Gulf Arab allies were surprised by the Saudi threat to lift production.
Just before the Algiers meeting at the end of September, the Saudis and Iran played the first half of this game: Saudis might cut if Iran froze. The next day OPEC reached a tentative agreement to work toward an agreement.
With all the rhetoric and comments and hints and reports, even if the organization were to prove ‘industry observers’ wrong and somehow manage to clinch a deal at the end of this month, we’ll have to wait and see if a potential deal would really hold.