OPEC supply cut may go deeper according to Iran, other delegates skeptical

OPEC supply cut
Iran’s Oil Minister Bijan Zanganeh hinted that the OPEC supply cut deal may be adjusted to increase production cuts to reduce pressure on oil prices.  Reuters photo by Leonhard Foeger.

Oil hit seven-month low despite OPEC supply cut deal

Iran is hinting that the Organization of the Petroleum Exporting Countries are considering altering the OPEC supply cut deal to make the cuts deeper after oil prices continued to fall on Wednesday.

But, Iran says clarity is needed on the effect of the current reduced level before any decision is made.

On May 25, OPEC and some non-OPEC oil producing nations, including Russia, agreed to continue reductions of 1.8 million barrels per day (b/d) of oil into the first quarter of next year.

The deal was initially supposed to expire this month, but rising production from the US, Nigeria and Libya has overshadowed the success of the OPEC deal.  Last month, overall compliance with the pact was at 106 per cent.

Two OPEC countries, Libya and Nigeria, were exempted from the pact due to crippling unrest that caused massive production losses.

Iran was allotted a small increase in production to help it recover its market share lost while under Western sanctions.

The Islamic Republic of Iran Broadcasting reported after a cabinet meeting, Iranian oil minister Bijan Zanganeh said “We are in discussions with OPEC members to prepare ourselves for a new decision.”

“But making decisions in this organization is very difficult because any decision will mean production cuts for the members.”

According to Reuters, Zanganeh’s comment is the first hint from an OPEC minister that the cartel is considering expanding the cuts, but other OPEC delegates downplayed the idea, saying it would be difficult to get Libya, Iran and Nigeria to cap their output.

“I don’t think so unless Iran would accept being included in the cut,” said a Reuters’ source close to OPEC.

Reuters says three other OPEC delegates dismissed the idea of a new cut.

To be sure, sources told Reuters this month, OPEC discussed cutting output further when it met on May 25.  The cartel could revisit the proposal should inventories remain high, negatively impacting prices.

Russia along with OPEC kingpin Saudi Arabia are holding the course.  Saudi Energy Minister Khalid al-Falih said the market is heading in the right direction and on June 11, Russia said there was no need to review the agreement.

Follow Teo on LinkedIn and Facebook!