In response to the aggressive outburst of Iranian Oil Minister Bijan Zangeneh in Vienna where he stressed that ‘Tehran would increase output, come what may’, other leading Organisation of the Petroleum Exporting Countries (Opec) members are beginning to take position apparently in preparation for the ultimate bargaining round.
On the sidelines of the Opec ministerial in Vienna, earlier this month, the veteran Iranian oil minister had aggressively asserted, “Under any circumstances, we will reach 4 million barrels per day (from the current 2.7m bpd), even if the price of oil falls to $20 per barrel.”
This was a clear challenge to fellow Opec producers. And their response was very much on cards. Indeed if, and this remains a big if, on various counts Iran raises output, some adjustments are required to be made within the Opec. Otherwise, crude market prices will tumble, one could say with some degree of confidence.
Emerging, new energy horizons are already complicating the global energy scene. The United States’ average daily oil production is on track to surge by 1m bpd this year, the biggest one-year jump in the nation’s history.
The country has pumped an average of 7.5m barrels of crude per day in 2013, up from 6.5m bpd in 2012. That breaks last year’s record when oil production jumped by 837,000 barrels per day between 2011 and 2012.
By 2016, the US domestic output is projected to touch all time high, 9.6m bpd.
And not only the US production is on up, output from Iraq and Libya is in too for considerable growth. And in the meantime, new crude horizons, from Arctic to Mexico and Brazil to Canada are cropping up – generating sentiments that a glut is just round the corner.
And this is going to impact the Opec. Commerzbank in a December 10 report said that Opec would need to cut output should Iranian and Libyan production return to the market.
In order to prevent oil glut and keep prices stable above the $100 a barrel level, Saudi Arabia, Kuwait, Qatar, and UAE would have to reduce their production by 1m bpd, the Saudi bank NCB said in its monthly report.
Opec has not been oblivious to all this. Some Opec officials have been publicly and privately jostling over whether the group should collectively cut back production in the event that global oil output rises significantly, threatening to weaken prices.
In its Monthly Oil Market Report, Opec projected demand for its crude to contract by 0.31m bpd to 29.6m bpd in 2014 from estimated 29.9m bpd in 2013.
The Opec battle for share has begun.
Gulf Arab members are taking positions – apparently for the ultimate bargaining round. Ministers from Saudi Arabia, Kuwait and Iraq are now insisting that Opec needn’t cut production next year to make room for additional supplies.
“Please don’t talk about cuts,” Saudi Oil Minister Ali Al-Naimi insisted in Doha when asked if Opec may consider a cut next year.
“There are no cuts,” he categorically said, adding that he was unconcerned about the potential market effect of a return of Iranian crude in the event sanctions are lifted after a possible deal with world powers over Tehran’s nuclear programme.
“God willing, there will not be any oversupply,” he emphasised.
“I’m telling you the market reflects fundamentals...this is the real situation. Why did oil prices rise by a few dollars recently? Today WTI is around $100 a barrel and before it was $94. Why has it changed? It has changed because people are expecting a shortage in supply not oversupply,” he emphasised.
The Iraqi oil minister Abdul Kareem al-Luaibi too echoed the sentiments.
“Supplies are in balance with demand so in reality there are no fears of an impending glut in the market,” he said.
Heralding an era of adjustments and readjustments, energy diplomacy is in play. Posturing is a part of it. In anticipation of the imminent changes in market sentiments, major stake holders are beginning to take positions. Minister Zangeneh fired the first shot, others are following suit. He cannot grumble now!