At OPEC’s latest meeting, bar the odd murmur, hardly any of its 12 members fell out of line and took a unanimous decision to hold the production quota at 30 million barrels per day (bpd). In any case, there was no sense in rocking the boat when the market appears to be stabilizing with Brent holding firm above the $60 per barrel level.
Furthermore, we now officially know OPEC produced 31 million bpd in May, with various industry surveys pointing to an even higher figure. In fact, the organization’s Secretary General Abdallah Salem El-Badri, formally downgraded the often flouted OPEC quota to a mere ‘recommendation’ which few members appear in the mood to take heed of.
However, as OPEC settles downs to observe how the second half of the trading year plays out, harboring hopes that risk of a dip to $40 has receded – trouble could arise from within its ranks. The producers’ collective claiming to be adept at coping with US shale oil production is more than likely to see another headache in the shape of fellow member Iran.
Here on Forbes, I have flagged up many false dawns we have had when it comes to a lasting, meaningful nuclear settlement with Iran. While it remains a big if, should Iran and world powers meet the 30 June deadline for finalizing a pact on curbing Tehran’s nuclear program, that the Islamic Republic would try to sell more oil is blindingly obvious. How much oil will be loaded, and how will OPEC react is not at all clear cut.
Starting with the former question, Iranians sounded fairly pragmatic, albeit clear, about their forward planning during OPEC deliberations and the media circus that customarily accompanies such proceedings.
Iranian oil minister Bijan Zanganeh said his country’s priority was putting an additional 1 million bpd on to the market within months of the sanctions being lifted.
“Within a month, we hope to add 500,000 bpd, raising it to 1 million bpd within six or seven months,” he said. I remain skeptical of the figure; oil production is not simply a case of turning more taps on at will. Logistics, insurance and buyers’ adapting their refineries to take on more Iranian crude are also factors that cannot be resolved in the stated time frame.
To contextualize, Zanganeh’s projected figure would mean raising Iran’s headline oil production by over 25% within six or seven months, with the country currently producing just shy of 3 million bpd since sanctions began to bite.
While skepticism about physical volumes that might start tricking from Iran is valid, there is no doubt the oil is indeed coming to the market. Zanganeh’s stated target could well be achieved within 18 months, if not six and Tehran is cognizant of Asian appetite for crude oil.
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