OPEC meet in Vienna today; showdown looms as Iran, Saudi argue over output hike

Vienna: The Organization of the Petroleum Exporting Countries (OPEC) ministers are bracing for a stormy meeting in Vienna Friday where they will discuss a Saudi proposal to hike oil output despite fierce resistance from Iran, setting the stage for a showdown between the arch foes.

At stake is the fate of an 18-month-old supply-cut deal between members of the OPEC and allied countries credited with clearing a global oil glut and lifting crude prices.

But Saudi Arabia, backed by non-member Russia, says the time has come to raise production to meet growing demand and appease major consumer countries like the United States, India and China who have complained about the spike in prices.

"Our customers have spoken loudly and we must listen to them," Saudi Energy Minister Khalid al-Falih said at a technical meeting on the eve of the OPEC gathering in Vienna.

But hopes of a compromise were dealt a blow when Iranian Oil Minister Bijan Namdar Zanganeh walked out of the meeting early, telling reporters: "I do not think an agreement can be reached."

Iran has bristled at the thought of easing the output ceiling at a time when its oil industry is facing renewed sanctions over US President Donald Trump's decision to quit the international nuclear deal with Tehran.

However Riyadh, which cheered Trump's move, is under pressure from its US ally to open the spigots as Trump hopes for lower pump prices ahead of November's mid-term elections.

Iran's Zanganeh, speaking to reporters on the sidelines of a Vienna seminar earlier this week, accused Trump of trying to politicise OPEC and said it was US sanctions on Iran and Venezuela that had helped push up prices.

The Opec logo. AFP

The OPEC logo. AFP

Venezuela, in the throes of an economic crisis that has slashed its petroleum production, is also opposed to changing the oil cartel's output policy, as are several other countries who would struggle to immediately increase production.

But Saudi Arabia has the backing of Russia, which is facing mounting calls from domestic oil firms to end the cutbacks so they can cash in on the higher oil prices.

Russian Energy Minister Alexander Novak, who attended Thursday's technical meeting, said it was "very important" not to allow the oil market to "overheat".

Face-saving compromise?

The 14-nation OPEC cartel and its 10 non-member partner nations, known as OPEC+, together account for more than 50 percent of the world's oil supply, giving them huge sway over the global market.

The deal they initially agreed called for production to be trimmed by 1.8 million barrels per day, but OPEC claims production restraints and geopolitical factors have actually seen output fall by far more, to around 2.8 million bpd.

Speaking after Thursday's meeting, ministers said they would recommend lifting production by a nominal one million barrels a day at Friday's OPEC meeting and Saturday's gathering of non-OPEC partners.

"Not every country can meet this number," admitted Saudi's Falih, in a nod to the problems in Venezuela, Iran and Libya, where clashes between rival factions have damaged key oil infrastructure.

The Saudi- and Russia-led proposal would allow several hundred thousand more barrels of oil to come to the market without however amending the milestone pact -- paving the way for a face-saving compromise with Iran.

But Iraqi Oil Minister Jabbar al-Luaibi suggested it was far from a done deal.

The proposal was approved by a majority, but "not everybody", he told reporters.

Oil prices up

Meanwhile, a Reuters report said oil prices rose by more than 1 percent in early Asian trading on Friday, pushed up by uncertainty over whether OPEC would manage to agree a production increase at a meeting in Vienna later in the day. Brent crude futures, the international benchmark for oil prices, were at $74.07 per barrel at 6.04 am, up $1.02 cents, or 1.4 percent, from their last close. US West Texas Intermediate (WTI) crude futures were at $66.45 a barrel, up 90 cents, or 1.4 percent.


Updated Date: Jun 22, 2018 09:36 AM

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