When OPEC did not cut production last November, the oil market collapsed in shock and awe that the cartel would not just give in and allow non-OPEC members to walk away with market share. Today, in Vienna, "exactly as expected," OPEC once again confirmed production will remasin at 30 million barrels per day in the face of the global oil glut and prices for WTI and Brent have jumped $0.50 to $1.00 (we presume on machines and removal of a worst case boost to production).
Saudi oil minister Ali Al Naimi described as an “amicable” OPEC meeting.
Prices wer weask going in and have reflexively bounced on the news that this was not a worst case scenario boost in production...
“No surprise, exactly what was expected,” says Marina Petroleka, head of oil & gas at BMI Research, after the OPEC decision to leave its output target unchanged. According to Ms. Petroleka, the cartel’s 30 million notional production target remains, but production will remain well above it – especially in the summer months as Middle East produces more to meet higher domestic demand.
“Eyes are now to the next meeting in end November, depending on what happens with the Iranian nuclear negotiations. The next meeting could be where a lot more internal negotiation and change of policy may need to take place,” she said.
But as OilPrice.com's Nick Cunninghasm asks, [11] if the West and Iran can sign a comprehensive agreement that leads to the removal of sanctions on Iran, how will OPEC respond to the prospect of a flood of new Iranian oil?
The oil majors are all highly interested in jumping into Iran. In Vienna for the OPEC summit this week, executives from Royal Dutch Shell, BP, and Total all expressed interest in the oil and gas reserves in Iran.
“Iran is a wonderful country with a fantastic resource base,” Shell’s CEO Ben van Beurden, said in an interview, according to Bloomberg [12]. “As soon as there is legitimate opportunity, we will be looking at Iran.” He is not alone – he went on to add that “everybody” wants to go into Iran.
Of course they do. Iran is sitting on top of an estimated [13]157 billion barrels of oil – around 10 percent of the entire world’s oil reserves. It also has the second largest reserves of natural gas in the world. And a lot of that remains underdeveloped due to a standoff with the West that dates back decades. The rapprochement with the West over its nuclear program may change all of that.
Falling oil prices and crippling sanctions have taken their toll. For that reason, Iran is eager to put sanctions in the past and quickly ramp up oil production. Estimates vary over how fast and how significantly Iran can increase output. Iran has boasted about putting 1 million barrels per day back to work immediately after sanctions are lifted, but perhaps a more reasonable estimate is 400,000 barrels per day [14] in the short-run.
In order to get to the next level, however, the Iranian government believes that it needs private multinationals to provide both the capital and technical expertise. The Iranian government is reportedly looking to revise the terms of oil contracts that it issued in the past in an effort to make investment more attractive. Rather than merely paying a sum to private oil companies for producing, Iran is considering doing something that it once opposed. It may allow the oil majors to take a share of production [15] and book the reserves, which would be substantially more enticing to private companies than just a fixed fee.
That would certainly lead to heavier interest from the oil majors, which eventually could result in much higher production from Iran.
That begs the question, how will OPEC – which is meeting this week – accommodate a possible flood of new Iranian oil? Most analysts see no change in OPEC’s output quota this time around, keeping production unchanged [16]at 30 million bpd. But in just a few weeks the negotiations over Iran’s nuclear program wrap up, possibly portending an end to sanctions.
