Almost by accident, OPEC adversaries Saudi Arabia and Iran are about to work as a team.
When the Saudi kingdom decided last year that OPEC should keep pumping to counter a surge in U.S. shale oil, Iran spearheaded resistance to the idea, saying output cuts were needed to buoy prices. Still a critic, Iran is nonetheless poised to amplify the strategy as it ramps up crude exports with the end of sanctions.
“Iran’s return is effectively the Saudi policy on steroids,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “The policy is that low-cost Middle East crude should be gaining market share, and that it’s shale and other expensive non-OPEC supply that should be cut. So to use the Saudis’ own logic, as far as Iranian production goes -- bring it on.”
By rebuffing calls to cut supply, the Organization of Petroleum Exporting Countries has sought to protect its market share by battering other producers with lower prices. That’s paying off, according to the International Energy Agency, as some U.S. shale drillers scale back and global oil majors slash investment, leaving OPEC to fill the gap. The 12-member group is likely to keep its output policy unchanged when it meets in Vienna on December 4, 2015.
OPEC’s rivals may face renewed pressure next year as Iran revives shipments constricted by three years of sanctions over its nuclear program. Iranian Oil Minister Bijan Namdar Zanganeh has called on other member states to pare output to accommodate its return, and insists the country will restore production regardless of the impact on prices.
While Venezuela and Algeria have also called for cuts to quotas, the Saudi-led organization is likely to stay the course, according to all 30 analysts and traders polled.
Curbs on Iranian oil sales to Europe and Asia will be lifted once the country dismantles atomic equipment in line with the terms of a deal struck with world powers in July. That could happen around the end of the first quarter, Societe Generale estimates. Iran can expand output by 500,000 barrels a day -- from about 2.8 million currently -- within a week of restrictions being removed, and by 1 million barrels a day within six months, according to state-run National Iranian Oil Co.Venezuela: tick, tick, tick.