When OPEC meets next week in Vienna, Iran and others are expected to press Saudi Arabia to scale back its record output--or else face the risk of a new oil-price collapse.
When OPEC meets next week in
Vienna
,
Iran
and
others are expected to press
Saudi
Arabia
to scale back its record
output--or else face the risk of a new oil-price collapse.
Much has changed since the group last met in December and managed to put aside
its differences to agree to collectively produce 30 million barrels a day. For
one thing, oil prices in
London
have
fallen below $100 a barrel as the world economic outlook has worsened. For
another, world powers have raised the pressure on
Iran
's
nuclear program while urging
Saudi
Arabia
to pump more oil to make up
for any Iranian shortfall.
The combination of these factors has sown discord in OPEC, with several members
fretting over the current output level. Yet despite the rhetoric, few analysts
expect OPEC to make dramatic shifts next week.
OPEC is currently pumping nearly 6% above its production ceiling, according to
most estimates. Nearly all of the excess comes from
Saudi
Arabia
, which again finds itself in
the OPEC spotlight - and firing line.
Iranian OPEC envoy Muhammad Ali Khatibi recently warned that growing
"instability" in the oil market would likely lead to a "serious
decline in oil prices." The reason? "Increasing production by some
members, especially
Saudi Arabia
,"
he said.
Algerian oil minister Youcef Yousfi said OPEC members are "worried about
the deterioration of the market" on Thursday. "I hope we will find a
consensus to correct this situation if it is confirmed the ceiling of 30
million barrels a day was breached," he added.
Yet there is little indication that
Saudi
Arabia
- OPEC's lone member with
significant spare capacity - sees anything wrong with today's market. In fact,
the recent decline in oil prices appears to be following the kingdom's
strategy.
Speaking in
Australia
last
month, Saudi Oil Minister Ali al-Naimi said he wanted Brent oil prices to trade
at "around $100," unusually specific comments for the
normally-circumspect minister. Since that time oil prices have largely been in
retreat mode, hitting $99.47 Brent Friday, down 46 cents, after peaking at $128
earlier this year during the height of the
Iran
anxiety.
"
Gulf states
are
happy with the current situation. Market is well-supplied and prices are
reasonable," one Gulf OPEC official said Friday.
Yet recent weeks have provided an abundance of bad news to back the bearish
view within the OPEC contingent that would like to see a cut.
Only Friday, markets fell after the Federal Reserve in the
U.S.
-the
world's largest oil consumer--failed to commit to further quantitative easing. And
an interest-rate cut in
China
-the
engine of global oil demand growth - raised concerns its economy is slowing
more than previously expected.
Days after the OPEC meeting on June 17,
Greece
is
set to elect a new parliament, where opponents of austerity measures could make
new headway-further casting a cloud on a euro-zone recovery.
"Demand is not in good shape compared to the last meeting,"
Iran
's Mr
Khatibi said in a recent interview.
Countering the unknown of economic weakness is the unknown of exactly how much
Iranian oil will leave the market due to international pressure and sanctions.
In April,
Iran
's
production fell to its lowest level in 20 years and exports fell by a quarter
from normal shipments, according to independent estimates.
But new measures-including a European Union oil embargo and a U.S. ban on oil
settlements with
Iran
's
central bank-will hit with their full force in the summer.
That will come just as demand rebounds as refineries under maintenance return
online and
U.S.
motorists hit the road during the driving season.
Though it has kept mum about future output, most expect the Saudis to ignore
Iran
's
pressure and keep production elevated. "The Saudis will prefer to err on
the side of keeping the market well-supplied as Iranian output drops,"
Greg Priddy, an analyst at
U.S.
geopolitical advisory Eurasia Group wrote in a note Friday.
That is why many analysts expect OPEC's final decision is to be a
status-quo-keeping the official ceiling at 30 million barrels a day and
avoiding a meaningful statement on the over-production.
But production is not the sole contentious issue pitting Iranians and Saudis
against each other at the meeting. The two countries are also squabbling over
the choice of a new head to captain the organization. Both countries are
fielding a candidate to replace Abdalla Salem el-Badri, the current OPEC
secretary general who is set to leave at the end of the year.
But other members say the most likely winner will be a compromise candidate-such
as from
Iraq
or
Ecuador
-which
have also put forward nominees for the post.
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