How Iran, Russia Could Derail Oil-Production Deal -- 3rd Update
28 November 2016 - 09:23PM
Dow Jones News
By Benoit Faucon and Georgi Kantchev
VIENNA -- The world's biggest oil producers on Monday
intensified talks over an oil-output agreement but failed to
resolve disputes over production in Iran, Iraq and Russia that have
emerged as potentially deal-breaking obstacles.
The Organization of the Petroleum Exporting Countries was trying
to nail down the details of a September agreement to cut production
and reduce a global oversupply of oil. The negotiations come ahead
of an official OPEC gathering at its Vienna headquarters on
Wednesday, two years after the 14-nation cartel decided to let
prices fall, sending the market to historic lows and ushering in a
period of cheap prices for consumers.
Saudi Arabia and other countries within OPEC are pushing for an
output cut of more than 1 million barrels a day from the cartel --
more than 1% of global supply. Saudi Arabia, the world's top
exporter of crude and OPEC's most influential country, also wants
substantial contributions to a cut from producers outside the
cartel, like Russia, the world's largest producer of oil.
A diplomatic blitz ensued Monday to save a deal that was thrown
into question on Sunday when Saudi Arabia's powerful energy
minister, Khalid al-Falih, said the market could right itself
without an OPEC cut. Mr. Falih had previously been one of the
biggest advocates for a production cut.
Some progress was made Monday.
Iranian and Iraqi officials indicated in a private meeting they
would consider holding their output steady, a change in position as
both countries had initially said they wanted to keep increasing
output, a person familiar with the matter said.
But Iraqi officials were often on the phone talking to their
superiors, underscoring the tenuousness of the talks, the person
said. And a promise to freeze production may not satisfy the Saudis
either as they have indicated they want other OPEC members to
cut.
On Monday, Russian President Vladimir Putin and Iranian
President Hassan Rouhani said they had agreed to coordinate their
production, though they didn't disclose details. That pledge fell
short of the agreement to cut that Saudi Arabia has been looking
for.
At the same time, Algerian and Venezuelan oil ministers
Noureddine Bouterfa and Eulogio del Pino, respectively, flew to
Moscow on Monday to try to bring the Russians onboard for a
production cut.
Oil prices rose amid the negotiations on Monday, with Brent
crude rising 2.2% at $49.31.
Saudi Arabian officials are concerned by the reluctance of other
countries to join cuts, OPEC officials have said, worrying they
will trim their own production and then watch other countries swoop
in and steal the kingdom's former market share, as happened during
the 1980s. While countries that have suffered disruptions such as
Nigeria and Libya will likely get exemptions, Saudi officials don't
want to make sacrifices and then allow rival Iran to keep raising
output.
"If they are going to cut their production, the Saudis don't
want others to replace them," one OPEC official said.
The stakes for OPEC's credibility were summed up by Ecuador's
foreign minister, Guillaume Long, who said he came to Vienna to
"defend the relevance of OPEC in the 21st century."
Iran, Iraq and Russia all want prices to rise, but they have
fewer incentives to cut production than some others.
Russia wants prices to rise, as it relies on oil and gas for
just under half its national revenue. But the country has less room
to maneuver than Saudi Arabia, with much of its oil industry under
Western sanctions and oil fields located in icy Siberia where
fields could easily be damaged if shut down.
Iraq wants to pump every barrel it can as it needs to finance a
costly war with the radical Islamic State. The country has also
disputed the independent data used by OPEC to calculate its
production, saying it underestimate its production by about 200,000
barrels a day.
Iran is trying to regain the share of the oil-buying market it
enjoyed before Western sanctions over its nuclear program crippled
its energy industry. Even at low prices, it is useful for Iran to
rebuild relationships with European refineries and Asian
buyers.
Iran has a more diverse economy than many of its fellow OPEC
members. The Islamic Republic relies on crude-oil exports for about
25% of its budget, compared with 70% in Saudi Arabia and more than
40% in Venezuela.
A former Iranian oil official, Manouchehr Takin, said Saudi
Arabia and Iran were likely to put aside their differences this
time because the stakes are higher. Some analysts have said oil
prices could again fall below $35 a barrel if OPEC fails to make an
agreement this week.
"What you're seeing now is horse-trading," Mr. Takin said. "When
there is a crisis, OPEC always come together and take action
together."
Selina Williams and Kevin Baxter in London contributed to this
article.
Write to Benoit Faucon at benoit.faucon@wsj.com and Georgi
Kantchev at georgi.kantchev@wsj.com
(END) Dow Jones Newswires
November 28, 2016 16:08 ET (21:08 GMT)
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