OPEC is set for another showdown between rivals Saudi Arabia and Iran when it meets on Thursday, with Riyadh trying to revive coordinated action and set a formal oil output target but Tehran rejecting the idea. Oil prices were flat in Asian trading as investors awaited the outcome of the OPEC meeting in Vienna. Prices are still hovering near the $50 mark, and whether it will convincingly break above this level depends on how the OPEC meeting turns out.
Iranian Oil Minister Bijan Zanganeh yesterday rejected suggestions OPEC would agree on a general cap in the Austrian capital, saying his country backed a return to a national quota system.
Tensions between the Sunni-led kingdom and the Shia Islamic Republic have been the highlights of several previous OPEC meetings, including in December 2015 when the group failed to agree on a formal output target for the first time in years.
Should OPEC fail to agree any policy, it would again convince the market that its main members could try to raise supplies further to gain market share despite low prices.
Any agreement between Riyadh and Tehran would be seen as a big surprise by the market, which in the past two years has grown increasingly used to clashes between the political foes as they fight proxy wars in Syria and Yemen.
Crude prices briefly topped $50 last week for the first time this year as short-term production disruptions in Canada and Nigeria eased concerns about abundant global supplies, but they remain less than half of their 2014 peaks.
Here is a back drop of events that have recently taken place in the oil sector:
At its previous meeting in December 2015, OPEC failed to set any production policy including a formal output ceiling, effectively allowing its 13 members to pump at will in an already oversupplied market.
As a result, prices crashed to $27 per barrel in January, their lowest in over a decade, but have since recovered to around $50 due to global supply outages.
Until December 2015, OPEC had a ceiling of 30 million barrels per day (bpd) – in place since December 2011, although it effectively abandoned individual production quotas years ago.
OPEC currently produces around 32.5 million bpd. Any ceiling below that number would represent an effective cut.
Saudi Arabia effectively scuppered plans for a global production freeze – aimed at stabilising oil markets – in April. It said then that it would join the deal, which would also have involved non-OPEC Russia, only if Iran agreed to freeze output.
Tehran has been the main stumbling block for the Organization of the Petroleum Exporting Countries to agree on output policy over the past year as the country boosted supplies despite calls from other members for a production freeze.
Tehran argues it should be allowed to raise production to levels seen before the imposition of now-ended Western sanctions over Iran’s nuclear programme.
Iranian Oil Minister Bijan Zanganeh said Tehran would not support any new collective output ceiling and wanted the debate to focus on the more radical idea of individual country production quotas.
Iran stayed away from a disastrous meeting in Doha on April 4 between OPEC and other major producers, including Russia, that failed to agree a coordinated output freeze.
(With inputs from Reuters & AFP)