By May 16, 2017 Read More →

Iran could back extended OPEC cut: Sources

OPEC cut

Sources familiar with Iran say the cartel’s third-largest producer will join an extended OPEC cut if there is a consensus.  

OPEC cut extension could go to March, 2018

On Tuesday, Reuters reported sources familiar with Iran say a proposal to extend the OPEC cut in production until March of 2018 is a good idea and OPEC’s third largest producer is likely to agree to an extension if there is a consensus amongst participants.

“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,” one of the sources told Reuters.

Saudi Arabia and Russia announced on Monday they agreed that an extension of the pact for an additional nine months is necessary to cut into the global crude supply glut.

As well, Kuwait, Oman and Venezuela have also signalled they would support an extension.  Iraq has also voiced its support, but has publicly agreed to extend the deal only to the end of the year.

A second source in the Reuters story said he expects Iran to agree to the nine-month extension, provided other producers such as Iraq were also on board.

Some are cynical of the Iranian position as Iran was the only OPEC member allowed to increase its output under the current OPEC cut and the country is holding presidential elections on Friday.  Current president Hassan Rouhani is vying for a second term against five candidates, mostly prominent hardliners.

Last year during talks on the OPEC pact, Iran was able to convince the cartel that it should be allowed to increase its production because it lost market share while under Western sanctions.

Oil Minister Bijan Zangeneh said on May 6 that he believed the OPEC cut would be extended, although he did not offer a timeframe.  He added $55/barrel was a suitable price for oil.

The first source echoed previous views expressed by Saudi Arabia, saying it was necessary to support prices to ensure investment in future projects which will help avoid shortages in the future.

“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 told Reuters.

The second source said he is looking for a modest price recovery as likely in the summer months as US gasoline demand rises and a likely drawdown in inventories.

“I think prices will move up to $51-$55 and in August may go to even $58,” he said.

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