OPEC’s monthly report released this morning predictably states the same message the group has been promulgating for months now:
1) non-OPEC production declining this year,
2) OPEC production rising,
3) economic growth slowing,
4) world oil demand thus increasing at a slower rate, and
5) OPEC’s grab of market share widening as non-OPEC’s share contracts.
OPEC is going to continue doing what it has been doing. It sees 2016 as a year where it will be successful in doing so, which is why all the chatter about possible coordinated action is just that- chatter. Iran is the latest voice.
OPEC expects a steeper decline in non-OPEC production this year than previously forecast. In its monthly report, The group now forecasts non-group output to fall by 700,000 bpd this year. At the same time, OPEC’s production rose by 130,700 bpd in January to 32.34 M/bpd. OPEC also cut its world oil demand forecast by 10 K/bpd from its previous report. Now it sees oil demand rising by 1.25 M/bpd in 2016 to 94.21 M/bpd. (You can read the takeaways from the OPEC report here.)
“If there were a strong political will, the price of oil would have been balanced within one single week…There is political will behind OPEC indecision over production ceiling in the organization,” Iran’s oil minister Bijan Zanganeh was quoted by the Islamic Republic News Agency as saying. Still, he said, “We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia.”
Thus Zanganeh both chided Iran’s chief antagonist Saudi Arabia (“the political will” he refers to unmistakably pertains to Saudi) for steering OPEC to abandon its quota last December, and expressed an arguably disingenuous willingness to dialogue with Saudi to work toward joint action on oil prices.
This as the battle wages on in this new phase of the Saudi-Iran proxy war: who can produce more oil. There will be no meeting at least in the short-term, and Zanganeh and his Saudi counterparts know it. In the attempt to show who is more altruistic with regard to the oil market, Iran and Russia have been the chief actors of late.
Earlier this month, Russia placed feelers into the oil market regarding cooperation between OPEC and non-OPEC producers to arrest the oil price plunge. The market responded with volatility, but the fundamentals of oversupply and contracting demand remained. It was just chatter.
In fact, Rosneft CEO Igor Sechin was quoted by Bloomberg as saying Wednesday that it’s highly doubtful that any coordinated action between oil producers will occur. “Tell me who is supposed to cut? Will Saudi Arabia cut production? Will Iran cut production? Will Mexico cut production? Will Brazil cut production? Who is going to cut?”
And speaking to Russia’s plans to pursue market share (a strategy which, of course, Saudi and Iran are also pursuing), Sechin said, “We are working on preserving our traditional markets and we will supply those markets with oil in a competitive battle.”
As oil prices have resettled to the “new low normal levels” following each ‘hint’ that joint action could be impending, so too has the “oil news” returned to the “I’m not cutting unless you do, and you’re not” basic narrative. As market fundamentals remain the driver of oil prices, so too does market share pursuit remain the driver of these three oil players.
Iran has been uncaged, is free to reenter the global oil market, and to do so without the burden of a recommended production ceiling imposed by Saudi-led OPEC. Over and over again in the last year, Zanganeh and his subordinates in the country’s oil ministry have expressed their enthusiasm for Iran’s reclamation of market share once sanctions were lifted. Now is Iran’s time. It is more unlikely now than at any time since prices started falling that Iran will agree to cut oil production- especially because Saudi has no plans on doing so either- nor Russia.
