Iran appears to soften stance on OPEC oil output increase

24 September, 2018, 20:56 | Author: Manuel Hopkins
  • Iran's OPEC governor Hossein Kazempour Ardebili

OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday ruled out any immediate extra increase in output, effectively rebuffing a call by Trump for action to cool the market.

A decade ago, Brent crude surged to almost US$150 a barrel, only to crash just months later as high fuel prices and the global financial crisis triggered a slump in demand. And also major traders and banks expect oil prices to rise over $90 per barrel in coming months.

Benchmark Brent oil LCOc1 reached $80 a barrel this month, prompting Trump to reiterate on Thursday his demand that the Organization of the Petroleum Exporting Countries lower prices.

"I do not influence prices", Saudi Energy Minister Khalid al-Falih told reporters in Algiers ahead of a meeting of OPEC and non-OPEC energy ministers. Furthermore, it leaves the market extremely vulnerable to supply disruptions. "I don't know of any refiner in the world who is looking for oil and is not able to get it", Falih said.

A mid-term report released by OPEC on Sunday forecast that non-OPEC supply from countries led by the United States would rise by 2.4 million bpd in 2019 while global oil demand should grow by just 1.5 million. The biggest source of new global supply, US shale, is also experiencing growing pains as pipeline bottlenecks and workforce issues hamper growth. Kharg Island provides a sea port for the export of oil and extends Iranian territorial sea claims into the Gulf oil fields.

Mercuria Energy Group Ltd.co-founder Daniel Jaeggi said prices may spike to over $100 a barrel in the fourth quarter because the market doesn't have much capacity left to replace more than 2 million barrels a day of Iranian exports that could be lost to sanctions. Output in Venezuela is also slumping due to an economic crisis.

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Commodity merchants Trafigura and Mercuria said that Brent could rise to $90 per barrel by Christmas and even above $100 in early 2019 as markets tighten once U.S. sanctions against Iran are implemented from November.

Rising crude prices is always bad for oil retailers as it is a raw material for them and aviation companies as oil is a major part of their operational expenses.

One problem is the uncertainty over how much oil will be lost when the USA -led sanctions against Iran begin in November.

One interesting outtake from the Algiers meeting was change in the Iranian rhetoric.

However, comparing the paper Oman contract to physical Dubai shows that the forward curve for the physical market is not as steeply backwardated.

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