A proposal to extend an OPEC and non-OPEC supply cut for nine months is a positive idea, sources familiar with Iranian thinking said, suggesting OPEC’s third-largest producer is likely to go along with such a plan if there is a consensus. Saudi Arabia and Russia, the world’s top two oil producers, agreed on Monday on the need to extend output cuts for nine months until March 2018 to erode a glut. That would be longer than the optional six-month extension first agreed.
Kuwait, a Gulf producer usually aligned with the Saudi OPEC view, said on Tuesday it supported the proposal. The Iranian position is less predictable, however, as it was the only OPEC member allowed to increase its output under the supply cut deal and holds presidential elections on Friday. “This statement shows the commitment by OPEC and major non-OPEC oil producers to bringing stability to the oil market, in which is essential to have security of supply in coming years,” said one of the sources.
A second source said he expected Iran would probably agree to a nine-month extension when OPEC and non-OPEC producers meet to set policy on May 25 in Vienna, provided that other producers such as Iraq were also on board.
During talks last year on the supply cut deal, Iran successfully argued it be allowed room to pump more as it lost market share while under Western sanctions, raising the question of whether Tehran would sign up for a longer supply cut.
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Iran has not officially reacted to the Saudi-Russian statement. In Friday’s election, President Hassan Rouhani is standing for a second term against five other candidates, mostly prominent hardliners.
The current oil minister, Bijan Zanganeh, speaking on May 6, said he believed producers were likely to extend the OPEC-led deal although he did not give a timeframe, and added $55 was a suitable price for oil.
Oil prices have gained support from the supply cut pact but high inventories and rising U.S. production have acted as a brake on the recovery. Brent crude was trading at $52 on Tuesday.
The first source familiar with Iranian thinking said it was necessary to support prices to ensure there is enough investment in supplies to avoid shortages in future, echoing a view often expressed by Saudi Arabia. “Low oil prices may bring satisfaction for some consuming countries in the short run, but in the long term as a result of reduced investment in new oil production, they could end up paying a much higher price for a barrel of oil,” he said.
The second source also saw a modest price recovery as likely in the summer months when U.S. gasoline demand seasonally rises, citing factors such as a likely drawdown in inventories. “I think prices will move up to $51-$55 and in August may go to even $58,” he said.