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News // Middle East and OPEC

High drama in Vienna causes some observers to think Saudis are bent on quashing output deal

08 November 2016 , 18:00Neftegaz.RU907

By most counts, the long-standing rivalry between Saudi Arabia and Iran flared up again at the worst possible time, reportedly during the recent meeting among OPEC that was intended to pave the way for ratification of an oil output reduction deal later this month.

 

 Mohammed Barkindo, secretary general for OPEC, issued a predictable statement saying that «the fact that discussions are still going on is a positive one» and believes a deal will be reached, but one OPEC source at the meeting saw Saudi and Iranian representatives clash and told Reuters, «The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting.»

 

This was backed by 3 other sources who witnessed the event.

 The Saudi threat was triggered by Iran yet again reiterating its vow not to freeze its output based on its position that it must first achieve production levels equal to or even above those prior to the imposition of international sanctions.

Initially, the Saudis offered to reduce output from 10.7 million bpd to about 10.2 million if Iran agreed to freeze production at around levels of 3.6 million-3.7 million bpd – even though Iran's crude output is closing in on the 4 million mark.

Iran countered that the offer was essentially a false one because the kingdom had already boosted output to record levels, and a modest cut would not diminish the fact it has already won extra production and revenue.

The prospect of the Saudis raising output reportedly surprised its Gulf OPEC allies, who then witnessed kingdom officials ask to call off the following day's meeting with non-members, including Russia.

Yet another anonymous (and non-Iranian) observer remarked, «We felt as if they (the Saudis) wanted the meeting to fail.»

 

The diplomatic Barkindo assured the press that he is «optimistic» a final agreement will be reached, and this seemed to please Michael Lynch, president of Strategic Energy & Economic Research, who declared, «After Barkindo's comments, there's less concern that we will sink into an all-out price war.»

But it hasn't convinced traders, who caused oil futures on Friday to stay on course for their biggest weekly percentage declines since January; and given that the Saudis were responsible for scuttling the last OPEC meeting to freeze oil prices, the alleged Vienna scuffle is yet more evidence to critics already skeptical of a happy outcome that the follow-up summit will go the way of all previous summits – with no deal being reached.

 

Earlier this week, John Kilduff, founding partner of Again Capital, echoed the sentiments of many analysts when he wrote in a Bloomberg editorial that the days leading up to the Vienna meeting of OPEC members to ratify its output reduction deal are characterized by vows of  "higher, not lower, production from seemingly every corner of the producing universe."

He added that the machinations of the deal's participants are «sort of like an old Vaudeville skit where two comics keep urging the other to enter the unknown by alternatively repeating to each other, «After you; no, after you.»

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