Why present OPEC ceiling best option for Iran?

Oil&Gas Materials 23 November 2017 15:57 (UTC +04:00)

Baku, Azerbaijan, Nov. 23

By Leman Zeynalova -Trend:

The current OPEC ceiling is the best option for Iran now and in 2018, Francis Perrin, Senior Fellow at the OCP Policy Center (Rabat) and Senior Research Fellow at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.

He believes that this is because the present OPEC ceiling does not prevent the country from producing at a high level - about 3.8 million barrels per day of crude oil - and is supporting prices.

The expert recalled that at the end of November 2016 Iran expressed its satisfaction after the OPEC decisions and did not have to reduce its production as OPEC took into account the devastating impact of Western economic sanctions on Iran's oil output and exports between 2012 and the end of 2015.

“Iran is allowed to produce 3.8 million barrels per day of crude, which is its present capacity. Let us also remind that the OPEC production ceiling and national quotas cover crude only and not natural gas liquids, of which Iran is an important producer. It is in the national interest of Iran that OPEC production reductions are maintained and extended,” added Perrin.

He pointed out that in a mid-term perspective Iran will of course increase in a very significant way its oil (and gas) production and exports but, for now, the country does support the extension of the OPEC/non-OPEC deal.

As for the the upcoming OPEC meeting to be held Nov.30, the expert said he expects the extension beyond the end of March 2018.

Talking about the progress in the implementation of the OPEC deal, the expert noted that this shouldn’t be taken for granted.

“One year ago, at the end of November 2016, OPEC member countries decided to react to the fall in oil prices for the first time since the summer of 2014. They began reducing their oil production in cooperation with 10 non-OPEC countries (including Azerbaijan) from 1 January 2017. These reductions did contribute to the rebalancing of the world oil market and to the rise in oil prices. The price of North Sea Brent was $63.32 per barrel (January 2018 contract) in London on 22 November at the end of the day as against less than $30/b at some point in January 2016. This is a real achievement. The cooperation within OPEC and between OPEC and several non-OPEC countries was successful,” he recalled.

Perrin went on to add that after a fall in 2016 non-OPEC production is up again. Moreover, US production is increasing thanks to unconventional oil (shale oil and tight oil) and this trend is a serious threat for OPEC, the expert believes.

“I think that the organization is well aware of the market situation, of the benefits of cooperation and of the risks ahead. My feeling is that OPEC will extend its production reductions beyond the end of March 2018 and it would be a very good decision in the present market configuration,” he said.

He noted that basically there are two options for this extension: until the summer of 2018 or until the end of 2018.

“Frankly, the second option would be the best one in order to send a strong message to the markets. But it is clearly not a done deal. Russia seems very cautious on this point and some Russian oil companies prefer the first option. There is some real suspense on this count for the next few days before the meeting of the OPEC Ministerial Conference in Vienna,” Perrin believes.

Another interesting issue, according to the expert, is the implementation of OPEC decisions.

“The average conformity level is very high but several member countries do not respect their quotas. This situation can and must be improved,” he added.

As for the possibility of considering oil export quotas along with production, the expert said it would make sense but OPEC has a long record discussing production quotas and not export quotas.

“I do not see any change on this point in the near-term, and probably also mid-term, future. The rationale is that if a country decides to reduce its production it will normally also reduce its exports because the priority is first to meet its national demand,” he concluded.


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