October 25, 2016

Iran says will resist curbs on oil output as part of global pact

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Iran said on Wednesday it would resist any plan to restrain its oil output as fellow OPEC ministers tried to persuade the country to join the first global oil pact in 15 years.

Talks in Tehran between Iranian oil minister Bijan Zanganeh and his counterparts from Iraq, Qatar and Venezuela began on Wednesday. Iran is the major obstacle to the first joint OPEC and non-OPEC deal since 2001, having pledged to increase output sharply to regain market share lost during years of sanctions.

The meeting in the Iranian capital followed a deal reached on Tuesday by OPEC power Saudi Arabia and non-OPEC Russia, the world’s top two producers and exporters, to freeze production at January levels if other big oil nations agree to join.

OPEC Gulf producers – Qatar, Kuwait and the UAE – as well as Venezuela said they would join the pact, aimed at tackling a growing oversupply and helping prices recover from their lowest in over a decade.

“Asking Iran to freeze its oil production level is illogical … when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.” Iran’s OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh daily newspaper on Wednesday.

“How can they expect Iran to cooperate now and pay the price?” he said. “We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level.”

The freeze plan has so far failed to push up oil prices, due to concerns Iran would not participate and that a deal would do little to ease the global glut as it would still allow Russia and Saudi Arabia to keep pumping at near record levels.

Venezuelan Oil Minister Eulogio Del Pino, Iraqi Oil Minister Adel Abdel Mahdi and Qatari Energy Minister Mohammad bin Saleh al-Sada sat down with Zanganeh at 3 p.m. (1130 GMT).

The sanctions, imposed over Iran’s nuclear programme, were lifted last month after an agreement with world powers, allowing Tehran to resume selling oil freely in international markets.

Iran exported around 2.5 million barrels per day (bpd) of crude before 2012, but sanctions cut that to around 1.1 million bpd. Tehran has pledged to raise supply by around 1 million bpd in the next 6-12 months.

This would only add to the global glut, which has been fuelled by US shale output and a decision by Saudi Arabia to pump at full capacity to drive higher-cost producers out of the market.

The world is already producing more than 1 million bpd than it consumes, with oil stockpiles at record levels.
As a result, prices fell below $30 per barrel in January from as high as $115 in mid-2014, hammering the finances of Russia, Saudi Arabia and other producers.

Brent oil futures rose 3 per cent on Wednesday after losing as much as 4 per cent the day before.

“A freeze is not the same as a cut, and somewhat disingenuously, keeping crude production at January levels actually implies higher-than-expected annual output … and so can hardly tackle the current market oversupply,” JBC Energy said in a note.

Two non-Iranian sources close to the OPEC discussions told Reuters on Tuesday that Iran might be offered special terms as part of an output freeze deal. “Iran is returning to the market and needs to be given a special chance, but it also needs to make some calculations,” said one source.
The sources did not elaborate on the special terms, which could be anything from setting limited production increases to linking future output rises to a recovery in oil prices.
But Tehran-based oil analyst Reza Zandi said it would be difficult to persuade Tehran to agree to any restraints as there was a broad consensus among senior Iranian officials to increase production to pre-sanctions levels.
“Freezing the output is against Iran’s national and economic interests, Zanganeh cannot accept it,” he said. “The establishment has decided so.”
Olivier Jakob from Petromatrix consultancy said that if Saudi Arabia were to freeze output at January levels, the kingdom would need to cut exports by 0.5 million bpd in the summer months, when it burns more oil for power generation at home.
“The production freeze can therefore be seen as an un-official way for Saudi Arabia to make some room for the restart of the Iranian exports,” he said.
The last global deal in 2001 saw Saudi Arabia persuade Mexico, Norway and Russia to contribute to production cuts, although Moscow did not follow through and raised exports instead.

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