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OPEC meeting may be lull before the storm

OPEC meeting may be lull before the storm

OPEC ministers will meet in Vienna this week for the second time since oil prices began to plummet last June, with little to do but stay the course on production from the cartel’s members. After all, a decision by OPEC at its last meeting in November to stick to its target of 30 million barrels a day appears to be working, despite fears among some OPEC producers that the move would only cut deeper into their oil-dependent revenue.

Growth in U.S. shale oil — now the primary competitionAFP 518663211 I ERS AUT - for OPEC — is tapering off in the face of lower prices. Meanwhile, those prices, which fell to a six-year low in March, have recently rebounded. For Saudi Arabia, OPEC’s leading producer and decision maker, those are encouraging signs. But the June 5 semiannual meeting could be the lull before the storm for OPEC ministers. That’s because the gathering will come just weeks before a June 30 deadline for the U.S. and five other world powers to reach a deal with Iran over Teheran’s nuclear program.

Should those talks succeed, U.S. and European Union sanctions on Iran’s oil exports would begin to ease at some point, and the potential for more oil flooding the market and driving down prices again would increase. That would set the stage for an interesting meeting when OPEC ministers convene again in November.

Vakhshouri, a former market analyst for the National Iranian Oil Company, said Teheran, with a nuclear deal in hand, would insist that other OPEC members “reduce their production and open space” for Iran to sell more oil on world markets. This comes as OPEC oil supply surged to 31.2 million barrels a day in April, according to the International Energy Agency. That’s not only well beyond OPEC’s current target, but also the highest output since September 2012.

However, Vakhshouri notes that a nuclear agreement alone is unlikely to trigger big changes in oil prices soon. Iran’s exports, which have fallen from 2.5 million barrels a day in 2012, when the sanctions began to take effect, to 1.1 million barrels a day now, will need time to recover, she said. Iran’s most immediate goal for oil exports is reaching that 2.5-million-barrel level again.


December 2017
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