VIENNA: 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 competition 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.
“I don’t think any significant decisions will come out of this meeting,” Sara Vakhshouri, a Washington energy analyst, said of the upcoming session. “But if Iran reaches a deal, there’s going to be more to discuss and more expectations at the next meeting.”
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.
“If everything goes well by the end of June or early July, and sanctions start easing for Iran by the end of the year, Iran’s production is going to rise slightly by the end of the year,” she said.
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.
Moreover, Vakhshouri said, U.S. shale production is expected to continue to grow less than previously expected over the next year or so, keeping upward pressure on prices.
For its part, OPEC sees an oil glut continuing until 2017, according to a copy of the cartel’s new long-term strategy reported by Reuters.
The wild card, as always with world oil markets, is the potential for a major disruption in the Middle East and North Africa, where civil wars rage in Iraq, Libya and Yemen, and tensions remain as high as ever between Iran and Saudi Arabia.
“Considering all of the political turmoil in the Middle East, where most of the crude oil flow is coming from, prices have been relatively low,” she said.
