Saudi-Iran Rivalry Sets Scene for OPEC Showdown Over Output

Reuters

VIENNA, Dec 7 (Reuters) - It used to be said of OPEC that it was like a teabag - it only worked in hot water. If that is so, conditions on world oil markets could hardly be more difficult as prices languish at almost seven-year lows near $40 a barrel.

Yet, rather than closing ranks, OPEC is finding that an intensifying battle for market share, worsened by deep regional differences between Saudi Arabia and Iran, is driving it further apart.

Halfway through last Friday's six-hour meeting, an unexpected dispute erupted over the defining feature of the cartel. In a move sources say was masterminded by Saudi Arabia, ministers finally agreed for the first time in decades to drop any reference to the 13-member group's output ceiling.

The pivot, which surprised not only markets but also some OPEC officials, appeared to be a direct response to Saudi Arabia's arch-rival Iran, which has made clear it intends to make a rapid return to global oil markets next year as nuclear-related sanctions are lifted.

With Tehran looking to pump as much as 1 million barrels per day (bpd) more crude into a market already saturated with excess supply, an increase of about 1 percent in world supply, maintaining or legitimising any pretence of OPEC limits - no matter how notional - was not an option for Riyadh.

"The ceiling issue was very controversial and they could not decide on it," said an OPEC source briefed on the discussion inside the room. "Nobody was happy."

Earlier, another source said there was a "huge disagreement among members, even bigger now, as oversupply is no longer mainly coming from Gulf delegates, but from Iran."

In the near-term, the outcome of Friday's meeting probably makes little difference in global markets. Ever since last year, most members have been pumping flat-out to defend their market from fast-growing upstart rivals like U.S. shale drillers.

And anyway the group's 30 million bpd ceiling has largely been symbolic and, in practical terms, ignored.

Yet abandoning the pretence of production restraint threatens to intensify price wars between OPEC members, leaving them even less likely to agree on any market measures down the road, analysts said, and piling more pressure on prices.

In a note following the meeting, Goldman Sachs said it saw a rising probability that the markets may need to adjust through "operational stress" when the world runs out of storage capacity, reiterating its "lower for even longer" thesis.

OPEC's Purpose

Since OPEC, which produces a third of global oil, was set up 55 years ago, the purpose of its existence was to set production targets to try to influence global prices.

It has weathered internal strife and conflict before, including wars between its own members -- Iran and Iraq in the 1980s, and Iraq's invasion of Kuwait in the 1990s.

But the present Sunni-Shia conflicts setting Saudi Arabia and Iran at each other's throats, particularly in Syria and Yemen, make the relationship between the two OPEC powers even more fraught.


123

View Full Article

Copyright 2016 Thomson Reuters. Click for Restrictions.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Related Companies
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Project Cost Controls Specialist
Expertise: Cost Engineer|Project Controls
Location: 52723
 
Logistics Coordinator
Expertise: Budget / Cost Control|Estimating|Supply Chain Management
Location: Tupman, CA
 
Accounts Payable Manager
Expertise: Accounting|Financial Analyst|Payroll
Location: KCMO, MO
 
search for more jobs

Brent Crude Oil : $45.89/BBL 3.69%
Light Crude Oil : $44.48/BBL 3.97%
Natural Gas : $2.96/MMBtu 1.00%
Updated in last 24 hours