Congruence in the Mideast Gulf?

The big beasts are tantalising market watchers ahead of an informal gathering of producer countries on the fringes of the International Energy Forum on 24-26 September. Even as the political rhetoric from regional rivals Saudi Arabia and Iran bubbles up again with the approach of the Hajj pilgrimage, the mood music promises a more harmonious discussion among Opec members than any since the 2014 price collapse.

But more interesting than a possible short-run convergence of Saudi and Iranian oil policy is a message given out by Iran on its long-term perspective.

Iran says its production will hit 4mn b/d inside a couple of months. Getting to that pre-sanctions level has been its pre-condition for participation in any output constraint. A senior state-owned NIOC official told Argus yesterday: “We have to leave the decision to the oil minister … But generally speaking, I have to say we are closer to the idea [of freezing] in comparison to the previous meeting of Opec. As I mentioned, we are close to 4mn b/d, which is very close to the level of production before sanctions.”

Saudi Arabia — the architect of Opec’s November 2014 “every man for himself” strategy — pulled out of the Doha freeze proposal in April, on the grounds that Iran was not participating. With that pretext removed, Riyadh would be able to justify a freeze by simply saying its customers’ demand — the justification for steadily climbing production — was being satisfied. After all, a return to restrictive policies has never been ruled out. Oil minister Khalid al-Falih noted in an interview with Argus in June: “There could be shorter-term situations in which, in our view, Opec might intervene, and yet other situations — such as long-term growth of marginal barrels — in which case it should not.”

But leave aside whether a freeze in Algiers would add up to a row of beans — most Opec members and key non-Opec producers are producing as much as they can anyway, so a freeze at current levels in a rebalancing market would have little impact on supply, although it would send out a political message. Iran regaining its pre-sanctions output and exports may be the trigger for a restatement of long-term aims and a recognition that, rivals though they are as sellers of oil and as regional powers, Tehran and Riyadh have the same long-term interests in oil market strategy.

NIOC international head Mohsen Qamsari, in his discussion with Argus, did not sound like an Iranian hawk of old, when Tehran lined up with Algiers and Tripoli (and in more recent years with Caracas) to push for quotas to support prices. Indeed, he sounded rather more like, well, more like a Saudi. “The only thing that gives power to Opec is the outlook for the future. Based on the existing information, it seems that after 2030 the only countries that are going to have availability of crude are four countries in the Persian Gulf. Yes, with this scenario, Opec has some power, but with the existing production level, no, I believe that Opec does not have that kind of influence in the market.”

And again: “The only important role of Opec is the capability to increase production and the low cost of Opec production. Very easily in Iran, in Saudi Arabia, and in Iraq with less than $10/bl, you can increase production, while this is not feasible anywhere else.”

This chimes with NIOC’s policy priority once pre-sanctions production and exports are regained. Iran is embarking on a drive to boost capacity and output. With its shiny new upstream contract model attracting foreign investors and with the introduction of a new grade, it targets production of 5mn b/d in just three years from now.

As to prices, oil minister Bijan Namdar Zanganeh said yesterday that an appropriate crude price would be $50-60/bl, and identified $55/bl as “suitable”. That is a price that the Mideast Gulf Arab producers could live with, but well below the floor of $70/bl that Caracas wants and that a number of other Opec members need.

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