OPEC rift deepens as Iran walks out of key meeting

Irving Hamilton
June 22, 2018

There is concern among consuming nations and some OPEC members that a shortage and rising oil prices could cripple the global economy.

Iran does at least "understand the necessity to reduce cuts" and has agreed to discuss the matter, Oman's Oil Minister Mohammed Al Rumhy said earlier in the day.

Major oil producers are set to pump around 1m more barrels a day to help cool crude prices as part of an Opec deal, according to Saudi Arabia's energy minister. "A more relaxed policy will push Brent towards $70 a barrel, while restrictive measures will support crude oil back towards $80".

Volatility was the theme on Wednesday as bearish traders continue to support the notion that Saudi Arabia and Russian Federation would push for at least a 1 million barrel per day increase in production, while bullish investors priced in opposition to the increase by Iran, Iraq and Venezuela. Zanganeh has said the president is to blame for high prices because of his unilateral withdrawal from the global nuclear agreement and the imposition of fresh sanctions that could significantly curb Iran's crude exports.

Brent oil prices were up 1.8 per cent on Friday.

Oil prices surged almost 75 percent, touching $80 a barrel, after OPEC and allies agreed to cut production in late 2016.

The Iran walk-out shows the tension within OPEC after the US, China and India put pressure on the cartel to boost production to ease the pain of high oil prices.

An authoritative OPEC source disclosed in a telephone interview with Vanguard, yesterday, that while Saudi Arabia has openly canvassed for a huge increase in supply, Iran said it would compromise on a small increase in OPEC oil output.

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Trump imposed fresh sanctions on Tehran in May and market watchers expect Iran's output to drop by a third by the end of 2018.

Outages in some nations and deeper-than-agreed cuts by others have made the actual reduction larger by about 1 million barrels a day.

"We want to prevent the shortage and the squeeze that we saw in 2007-2008", Falih said, referring to a time when oil rallied close to $150 per barrel.

While Saudi Arabia's cutting by more than required has helped Opec's compliance, involuntary reductions in Venezuela amid economic crisis and in Angola due to natural decline have had a larger impact and can not be reversed at short notice.

Reuters, quoting unnamed OPEC sources, said Iran had demanded that United States sanctions be mentioned in the group's post-meeting communiqué.

"OPEC could keep the same deal with compliance going back to 100%", said an OPEC source who is aware of Iran's stance.

OPEC Secretary-General Mohammad Barkindo said he was confident there would be a deal when the producer group meets in Vienna on Friday.

"Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher US policy toward Iran, Saudi Arabia's rival for influence in the region, and so will want to support Trump's call for lower prices".

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