The OPEC Deal Could Fall Apart In June

Authored by Irina Slav via,

OPEC’s oil production cut agreement could start falling apart soon, as Saudi Arabia and Iran once again face off. This time, however, the spat is over determining what the best price level is for the commodity. That’s what Iran’s Oil Minister Bijan Zanganeh told the Wall Street Journal in an interview.

The split, apparently, stems from Saudi Arabia’s insistence that crude oil should be kept closer to US$70 a barrel - a level Brent touched briefly early this year - and Iran’s equal insistence that US$60 is a better place for oil to trade at.

This disagreement could see the cartel start unwinding the cuts as early as June, when it will meet with its partners to discuss progress and next steps. Zanganeh’s explanation of the Iranian stance is anything but a surprise: “If the price jumps [to] around $70 ... it will motivate more production in shale oil in the United States,” he told the WSJ.

Zanganeh is not wrong, but the problem is that U.S. drillers have demonstrated that they could pump more at US$60 a barrel, too, so bringing prices closer to that level is not a guaranteed way to stymie U.S. oil production growth. Production has been growing steadily, last week hitting 10.37 million bpd.

The oil production in the United States is not the only problem. The bigger problem is soaring U.S. exports that are eating away the market share of OPEC members. This could be the last drop to swing OPEC in Iran’s favor.

Bloomberg quoted an ING analyst yesterday as saying that crude could fall below US$60 a barrel because of rising U.S. exports to Asia, a key market for every producer. The OPEC deal is under threat, ING commodities strategist said, because U.S. crude supplies are displacing OPEC’s. “The longer the deal goes on, it’s going to start falling apart. They continue to give market share away to the U.S.”


Justin Case Mon, 03/12/2018 - 14:16 Permalink

Go for $65/bbl

But merican hegemony needs a higher price for the USD recycling program. New records will be made in the merican debt bubble. Belgium buys a billions here and there, while China is off loading moar.  

DaiRR Justin Case Mon, 03/12/2018 - 17:54 Permalink

Is there any correlation between the price of oil and the religious tolerance (or should I say intolerance) in Iran and Saudi Arabia?  I think it is mutually exclusive, and I also think Iran is the worst of the two.  Also, Sunnis and Shiites intolerant towards each other creates constant BIG friction between these two countries.  It's a mentality of 700 years ago.

In reply to by Justin Case

Arnold Mon, 03/12/2018 - 14:18 Permalink

Sixty vs seventy is the diversion, not the arguement.

Like the frackers, the former Soviet will produce the same or more at forty.

ANWR and East Coast, market share baby.

Shahna Mon, 03/12/2018 - 15:00 Permalink

Then they should keep the price below the cost of shale!
This would also be appreciated muchlee by the peanuts standing at the pumps.

analyser Tue, 03/13/2018 - 07:02 Permalink

Exxon : around 30 billion $ capex in 2019, operating cash flow 2017 of 30 billion $. The plan is not without risk in trump/demography misery. More importantly,  might it not be wiser to spend this 30 billion a year $ in solar and related infrastructure ? There are not many companies or even governments  that can spend so much money, GE not he :-).  Cleaner and less pollution. You are one of the biggest reference companies in the US and you invest so little in the real future. We are increasingly dying from CO2.The sun gives us enough energy on 1 day for the whole  year. Wise strategy Exxon to spend the money like this ?