A fresh rift is emerging among OPEC members over trimming the cartel's oil output in the coming months, amid surging U.S. production, a resurgence in Iraqi exports and the possible return of more Iranian crude to world markets.
A fresh rift is emerging among OPEC members over trimming the cartel's
oil output in the coming months, amid surging
U.S.
production, a resurgence in Iraqi exports and the possible return of more
Iranian crude to world markets.
The Organization of the Petroleum Exporting Countries, a grouping of some of
the world's largest oil producers, hasn't changed its production ceiling for
two years. No one expects OPEC to cut back at a meeting scheduled in
Vienna
for
next week.
But some members are pushing to trim output next year, according to people
familiar with the debate. One OPEC official said members will have to decide
whether or not to cut as early as the first half of next year, amid a risk that
short-term global oil supply might build to such a level that prices could
weaken.
OPEC holds out-sized sway in global oil markets, producing more than one out of
every three barrels burned in the world. But its ability to move prices
significantly has been hindered recently by a surge in non-OPEC crude,
including a boom in shale oil in the
U.S.
And now,
Iraq
is
making strides in dramatically boosting its output after it was hobbled by
Saddam Hussein-era sanctions and then the fallout of the U.S.-led invasion of
the country.
Iraq
is on
track to produce some three million barrels a day on average this year, its
highest sustained level in at least 20 years.
And
Iran
's
nuclear deal with the West has added new uncertainty over whether the country
will eventually be allowed to ramp up its own output, potentially adding more
barrels to global markets.
Meanwhile, OPEC expects overall demand for its crude to drop by about 300,000
barrels a day next year.
All that is putting pressure on OPEC members to shave their overall production
to bolster prices.
Iran
is
pushing publicly for
Baghdad
to
throttle back, and accusing
Iraq
of
stealing its customers amid sanctions.
"
Iraq
has
behaved inappropriately in dealing with customers of Iranian oil" amid the
sanctions against
Iran
, said
Mansour Moazami, an Iranian deputy minister in an interview with the ministry's
website earlier this month.
A senior Gulf OPEC official said he expects
Iran
will
seek a debate on whether some OPEC members should rein in production if Iranian
barrels start to return to world markets.
"If
Iran
increases its production, OPEC may have to look at who should cut, and most
likely that would be the Gulf," said one OPEC official. Gulf OPEC
officials, however, are split on who should rein in output, according to people
familiar with the debate. They include
Saudi
Arabia
,
Kuwait
and
the
United Arab Emirates
, who
together account for the lion's share of output in the group.
Some say they should do it themselves next year in an effort to bolster prices,
while others say Iraq should be asked to rein in its output, those involved in
the debate say.
"The closer
Iraq
gets
to a four million barrels [a day] mark, the more it is important for us to find
a way to put a limit on their output," said one Gulf delegate.
But
Iraq
has
shown little willingness to back down. "I don't think we can take orders
from anybody [related to] the future of Iraq--especially Saudi Arabia and
Iran," said Adnan Al Janabi, chairman of the Iraqi parliament's oil and
gas committee, at an energy conference in Istanbul earlier this month.
OPEC has kept its overall production ceiling at 30 million barrels a day of
crude since December 2011. The organization has long been riven by factions and
squabbling. Earlier this year, surging
U.S.
production divided cartel members over what to do in response to all the new
supply. They agreed only to study the issue at the group's last meeting in May.
Earlier this month,
Iran
agreed to a number of measures that further restricts its nuclear energy program
in exchange for limited sanction relief. Recent
U.S.
and
European Union sanctions have cut Iranian exports by some 1.5 million barrels a
day.
The nuclear deal doesn't technically allow for any new Iranian oil exports. But
it promises to temporarily halt any new restrictions over the next six months. As
Iran
is
currently producing a bit below its sanctions limit, the deal could result in
the addition of a few hundred thousand barrels of extra Iranian oil per day to
markets.
Global crude prices fell initially on the news of the deal, but have firmed
again more recently, with prices for Brent, a key international benchmark,
hovering just over $110 a barrel.
U.S.
benchmark prices are around $90 a barrel, still high by historical standards.
Still, if diplomatic progress on
Iran
continues in the coming months, traders may expect a further easing of
sanctions and bid prices down in anticipation of such an outcome. According to
Bank of AmericaMerrill Lynch, a full return of lost Iranian exports could slash
prices by $10 a barrel--potentially bringing them below the $100 a barrel many
OPEC members--including
Iran
--need
to balance their budgets.
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